CIMB Research expects weaker 2HFY16 for Gamuda

by **Cals** Mon 28 Mar 2016, 00:09

CIMB Research expects weaker 2HFY16 for Gamuda

By Billy Toh / theedgemarkets.com | March 25, 2016 : 11:39 AM MYT

KUALA LUMPUR (March 25): CIMB IB Research has maintained its “Add” rating on Gamuda Bhd at RM4.81 with a higher target price of RM5.71 (from RM5.55) and said Gamuda remains its top pick among big caps given its biggest exposure to MRT 2 and the largest proxy to rail jobs.

In a note today, the research house said Gamuda’s annualised first half of financial year 2016’s (1HFY16) core net profit was 2 to 5% above CIMB and consensus’ forecast.

However, the research house said a weaker 2HFY16 was expected for Gamuda due to declining order book and weak property sales.

The blended construction pretax margin of 6.9% in 1HFY16 still has room for upside given the peak 10-11% MRT margin in FY15 and margin recovery could come pending the award of MRT 2’s underground works.

“We still expect Gamuda to be among the front runners for the next underground works package,” the note said. The underground works package is estimated worth of RM15 billion, the single largest scope for MRT 2. Gamuda’s 50% share in project delivery partner (PDP) joint venture (JV) implies a potential new order win of over RM7 billion.

The research house said all MRT 2 packages will largely be awarded in 2016 by MRT Corp.

It said the MRT awards were imminent, with the first three large packages could be awarded in the short term.

Gamuda is also vying for other jobs such as the bid for Pan Borneo, LRT 3 and Gemas-JB rail double track (subcontract works), it said.

“Our estimates of RM9 billion of total jobs in tender backed by a likely high success rate is unchanged,” it added.

However, the lackluster property sales performance in 1HFY16 could mean sustained weak property earnings going into FY17.

Potential revival of construction plays in months ahead could sustain the recovery in Gamuda’s foreign shareholding, with contract wins being the stock’s key potential catalyst in months ahead.

As at 11.20am, Gamuda is trading at RM4.80, with 171,300 shares traded.