Analyst Reports - Record profit seen for Gamuda

Gamuda Bhd

By HwangDBS Vickers

Buy (maintained)

Target price RM4.80 (unchanged)

Second-quarter financial year (FY) 2012 results will be out at the end of March and will lead Gamuda to a record year RM481mil net profit in FY2012 forecast. This would be driven by the maturing double tracking project (more than 71% complete) and RM1.2bil unbilled property sales. First half of FY2012 group property sales hit RM870mil (RM650mil local, RM220mil from Vietnam including RM100mil land sale to AEON), short of FY12F RM2bil target when annualised. Gamuda should meet local sales target of RM1.3bil, but may fall short of its Vietnam target of RM650mil due to slower sales at Celadon City. Gamuda City is off to a great start with the first two launches already sold out, and the third launch until February had been 50% sold.

MMC-Gamuda JV is in the front seat after being prequalified (three in total out of five parties) for the technical stage of the RM8bil Sungai Buloh-Kajang (SBK) mass rail transit tunnelling works. The award is expected to be out in April as commercial evaluations are under way. By mid-2012, Gamuda's order book could increase five-fold to RM10bil with the SBK MRT and the Gemas-JB double tracking, making it a strong rail contractor. This valuable experience, coupled with a competitive cost structure with depreciated machinery, makes it a strong contender for future projects such as the Circle and Radial MRT lines.

At current valuations of mean price to earnings and price to net tangible assets and 24% discount to the sum-of-parts, the MRT and Gemas-JB projects have not yet been priced in. Gamuda remains our sector pick and the most leveraged proxy to Malaysia's largest infrastructure contract, the MRT. There will be further upside to earnings and SOP value if we include the 6% project delivery partner fees (RM0.12 per share), and if our conservative order win assumptions for FY2012-FY2013 forecast (RM7bil) are raised to RM8bil.

Top Glove Corp Bhd

By Maybank IB

Sell (maintained)

Target price RM4.20 (raised)

Top Glove's upcoming second quarter financial year (FY) 2012 core net profit is likely to overshoot our forecasts but be in line with consensus estimates. Despite our earnings upgrade, the stock is still trading at a pricey calendar year 2013 price to earnings ratio (PER) of 16 times. We think rising latex costs, a weakening US dollar, minimum wage hikes and high foreign shareholdings of 35% will impinge on the stock's performance. Our target price is raised to RM4.20 (+24%) post our earnings upgrade as we peg the stock at 14 times calendar year 2013 PER (from discounted cash flow previously).

We expect the company to post a sequentially weaker core net profit of RM40mil (-11% quarter on quarter, +54% year on year). Though sales volume was sequentially higher (+5% QoQ, +10% YoY), blended margins should contract on a lower US dollar to ringgit exchange rate and lower margins for nitrile gloves (which accounts for 14% of total sales).

Though gross margins for latex gloves are still lower than those of nitrile gloves, the gap has narrowed to 1-4 percentage points (from 5-10 percentage points previously). This is because margins of latex gloves improve as there is a time lag in passing on cost savings in a downward latex cost environment and gross margins of nitrile gloves have declined by 2 percentage points to 18% now on price competition. Nevertheless, we expect latex glove margins to dwindle again as latex price is on its seasonal upward trend.

Telekom Malaysia Bhd

By ECMLibra Research

Hold (maintained)

Target price RM4.78 (raised)

We expect TM's 2012 top line revenue growth to be driven predominantly by Internet revenue backed by broadband growth momentum. TM targets 400,000 UniFi subscribers by year-end. In the recent results briefing, TM stated that it is targeting to achieve 400,000 UniFi users with 1.3 million premises to be passed by year-end. This implies an encouraging take-up rate of 31%. We believe that this figure is achievable on robust growth momentum of Unifi subscribers and low wired broadband penetration rate compared to mature markets.

The effect of UniFi cannibalising Streamyx is expected to continue going forward as we understand that 31% of new subscribers had migrated from Streamyx. However, we are not overly concerned on Streamyx's drop in revenue as the migration would be able to be offset with Unifi's higher average revenues per user (currently at RM184).

We are positive of TM's HSBB's UniFi growth momentum that has beefed up financial year 2011 internet revenues which we believe would further drive up future growth.

However, our HSBB UniFi net adds assumption is on the conservative side to account for competition going forward.

We maintain our hold call on TM