TA Securities upgraded its call on Gamuda Bhd to ‘hold’ from ‘sell’, with a maintained target price of RM3.50, based on its CY21 earnings and unchanged target PE multiples of 20x, 8x and 12x for construction, property and concession divisions respectively.
For its fourth quarter ended July 31, 2020 (4Q20), Gamuda recorded a still-healthy decline in revenue to RM926 mil from RM1.49 bil in the previous year, but experienced a net loss of -RM17.3 mil from the RM179 mil net profit in 4Q19.
According to TA Securities analyst Ooi Beng Hooi, the weaker results were mainly due to the implementation of the movement control order (MCO), causing the property and construction divisions to report a drop in PBT of 46.4% (RM172.8 mil) and 15.4% (RM239.3 mil) respectively.
“This was partially cushioned by a 5.9% improvement in concession PBT as water demand remains resilient throughout the year, coupled with lower operational costs at both the highway and water division,” Ooi said in a note today.
However, the construction and property activities picked up after the MCO period, causing those two segments’ 4Q20 results to recover strongly on a sequential basis of 68.5% and 225% jump in revenue and core profit to RM926.5 mil and RM130 mil respectively.
“Due to this, the management expects the decision on MRT3 to be made by the government soon as the shovel-ready project could be rolled-out to pump-prime the economy,” Ooi said.
As for the Penang Transport Master Plan, Gamuda plans to focus mainly on the reclaimation of Island A with the award of construction contract anticipated in 1Q21, as it is currently ironing out several remaining issues with the Penang state government.
Additionally, Gamuda and its Australian JV partner has been shortlisted to tender for two major infrastructure works, namely the M6 Stage I project, a motorway link in Sydney and two packages of Sydney Metro West project.
The tender outcome for M6 stage I project is expected to be known in 2Q21 while the tender for the first package of Sydney Metro West project is expected to be called in 2Q21.
Apart from that, Gamuda is working on another project in Australia and the outcome of shortlisting for tender could be known about six months later.
Currently, Gamuda’s outstanding construction order book eased to RM6.9 bil from the RM7.5 bil from last quarter, which is believed to provide earnings visibility to the group for the next two years.
“Provided there is no resurgence of Covid-19 new cases and political shock, we expect to see an earnings rebound in FY21, driven mainly by recovery in the construction division as operations return to normalcy,” Ooi noted.
