CIMB Research retains reduce with lower target price for Gamuda

TheStar Mon, Dec 17, 2018 08:28am - 5 years View Original


KUALA LUMPUR: CIMB Equities Research is maintaining its reduce recommendation for Gamuda Bhd with a lower target price of RM2.12 from RM2.30 previously as the construction-property company has the largest exposure to the sector’s rail downturn. 

It said on Monday Gamuda’s 1QFY7/19 core net profit of RM226.2mil made up 28%-29% of consensus and its full-year forecasts.
 
“We deem this to be broadly in line we expect weaker MRT 2 JV profit from 2QFY19 onwards given the timing of the cost rationalisation and conversion to a turnkey model.

“We also believe property sales could be weak. The bulk of the 15.7% on-year decline in 1Q19’s core net profit came from the loss of contribution from SPLASH water treatment concession,” it said. 

CIMB Research said the construction segment’s 9% pre-tax margin in 1Q19 does not reflect the impact of MRT 2 cost rationalisation and the forgone 6% project delivery partner (PDP) margin as a result of the conversion to a turnkey contract. 

Recall that in Nov 2018, MMC-Gamuda JV’s contract value for MRT 2 (SSP Line) was reduced by 22%, while the project delivery partner (PDP) model was converted to a fixed-price turnkey model.

The research house also said Gamuda’s property development arm has set its FY7/19 sales target at RM4bil, which it feels may be a tall order amidst the expectation of a muted property market in Malaysia in 2019F. 

The sales target consists of RM2.3bil worth of local properties, nearly double FY7/18’s RM1.2bil. Nonetheless, the target will be supported by RM2.3bil unbilled sales.

“Gamuda’s construction order book swelled by 78% on-quarter to RM11.8bil as at end-October 2018 due to the conversion of the MRT 2 balance PDP scope to a turnkey contract. However, Gamuda noted that the order book also includes several packages of domestic building contracts with a combined value of RM900mil that it has secured YTD (not announced asit did not meet Bursa’s threshold). 

“The group aims to bid for rail contracts in Singapore, Australia, Vietnam and Taiwan. We believe this could take some time to materialise,” it said.
 
   

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