PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts /B r ief ing N o t e
26 March 2010
MARKET DATELINE

Gamuda Share Price

Fair Value
:
:
RM2.84
RM2.05
1HFY07/10 Net Profit Grows 26% YoY From A Recom : Underperform
(Maintained)
Washout A Year Ago

Table 1 : Investment Statistics (GAMUDA; Code: 5398) Bloomberg: GAM MK

Net Net
FYE Turnover Profit# EPS# Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Jul (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 2,727.3 193.7 9.7 (40.7) 29.4 - 8.6 1.8 6.2 0.1 2.8
2010f 2,958.5 277.0 13.6 41.4 20.8 15.0 (9.0) 1.7 8.1 0.2 4.2
2011f 3,370.5 326.6 16.1 17.9 17.7 20.0 (10.1) 1.5 8.7 0.4 4.2
2012f 3,194.9 331.3 16.3 1.5 17.4 22.0 nm 1.4 8.1 0.5 4.2
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC #Ex-EI * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ Below market. 1HFY07/10 net profit came in within our forecast but Above
In Line
missed market expectation.
Below
♦ No blessing from Selangor state government on water deal as yet.
Gamuda said that Splash’s takeover bid for all water assets in the Klang Issued Capital (m shares) 2,017.5
Market Cap(RMm) 5,729.7
Valley for RM10.75bn was initiated by Gamuda and Sweet Water that
Daily Trading Vol (m shs) 7.3
collectively hold a 70% stake in Splash. The remaining 30% shareholder
52wk Price Range (RM) 1.85-3.38
in Splash, the Selangor state government investment arm Kumpulan
Major Shareholders: (%)
Perangsang Selangor (KPS), was not at all involved in the exercise. As EPF 10.1
such, the offer by Splash should not be construed as carrying with it the Raja Dato’ Seri Eleena 7.4
blessing from Selangor state government. Platinum Investment 6.2

♦ Not too hopeful on new construction jobs. Gamuda is not too hopeful FYE Jul FY10 FY11 FY12
about securing new construction jobs over the immediate term, as the roll- EPS Revision (%) - - -
out of new projects, both in the local and overseas markets, remains slow. Var to Cons (%) -9 -20 -26
Gamuda also revealed that it is not longer in the running for the Hulu
PE Band Chart
Terengganu hydroelectric project.
♦ Maiden property launches in Vietnam in 2H. Gamuda guided
PER = 30x
US$170m and US$100m sales from Yenso Park and the Tan Thang project PER = 25x
PER = 20x
in FY07/11. Soft and official maiden launches are in May and Aug 2010 for PER = 15x
Yenso Park, and Aug and Sep/Oct 2010 for the Tan Thang project.
♦ Risk appetite for construction stocks to improve. We are beginning
to turn a little more upbeat on the sector, prompted largely by investors’
improving risk appetite for construction stocks following: (1) The massive
Relative Performance To
underperformance of the sector vis-à-vis the market in 4Q2009 and
KLCI
1Q2010; and (2) A better sector news flow and new expectations leading
up to the announcement of the 10th Malaysia Plan (10MP) in June 2010.
These may moderate negative elements such as: (1) The slow pace of the Gamuda

roll-out of public projects, shrinking margins and declining dominance of

established players in large-scale projects locally; and (2) The not-so-rosy
outlook and increased operating risks in key overseas markets (following FBM KLCI

the Dubai credit crisis, Dong’s devaluation and rising arbitration cases).
♦ Maintain Underperform. However, upside in Gamuda’s share price is
capped by rich valuations. Indicative fair value is RM2.05 based on 14x
revised CY10 EPS of 14.7sen, in line with our benchmark 1-year forward
target PER for the construction sector of 10-14x.
Joshua CY Ng
(603) 92802151
Please read important disclosures at the end of this report. joshuang@rhb.com.my

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 1HFY07/10 Net Profit Grows 26% YoY From A Wash Out A Year Ago

♦ Below Market. 1HFY07/09 net profit came in within our expectation at 47% of our full-year forecast, but
missed market expectation at only 40% of the full-year market consensus.

♦ No blessing from Selangor state government on water deal as yet. Gamuda said that Splash’s takeover
bid for all water assets in the Klang Valley for RM10.75bn was initiated by Gamuda and Sweet Water that
collectively hold a 70% stake in Splash. The remaining 30% shareholder in Splash, the Selangor state
government investment arm Kumpulan Perangsang Selangor (KPS), was not at all involved in the exercise. As
such, the offer by Splash should not be construed as carrying with it the blessing from Selangor state
government. Incidentally, KPS made an announcement to Bursa Malaysia yesterday to clarify that it was “not
aware” of the offer that was made “independently” by the other two shareholders of Splash. We maintain our
view that the takeover bid will fall through as it is unlikely to get the blessing from both the Federal Government
and Selangor state government. It is not hard to imagine the kind of political backlash the governments will get
for allowing the water assets to move from a few “big corporations” to a “big corporation”, or in other words, to
remain with a “big corporation”. Recall, the governments are supposed to, pursuant to the Klang Valley water
sector restructuring, take full control of the water assets to ensure water remains affordable to the people. We
are more inclined to see Gamuda’s move as a tactic to pressurise the governments into speeding up their
actions.

♦ Not too hopeful on new construction jobs. Gamuda is not too hopeful about securing new construction jobs
over the immediate term, as the roll-out of new projects, both in the local and overseas markets, remains slow.
Recall, Gamuda is keen to bid for the runway package of the new LCCT (believed to be worth RM300-400m) and
the Kelana Jaya and Ampang LRT line extension project (RM7bn) locally, and is eyeing four projects in the Gulf
states worth a total value of RM4bn comprising a highway project each in Qatar and Bahrain, and an airport
work package each in Qatar and Oman. Gamuda also revealed that it is not longer in the running for the Hulu
Terengganu hydroelectric project. Incidentally, Loh & Loh announced yesterday that its 60:40 JV with Sinohydro
Corp had been awarded by Tenaga Nasional a RM828.3m civil work contract for the Hulu Terengganu
hydroelectric project. In our forecasts, we assume Gamuda to secure RM1bn worth of new jobs in FY07/10. So
far in FY07/10, Gamuda has yet to secure any new contracts.

♦ Maiden property launches in Vietnam in 2H. During an analysts’ briefing about two weeks ago, Gamuda
guided US$170m and US$100m sales from Yenso Park and the Tan Thang project in FY07/11. Soft and official
maiden launches are in May and Aug 2010 for Yenso Park, and Aug and Sep/Oct 2010 for the Tan Thang project.
Gamuda also guided that when both the projects are in full swing three years from now, they should contribute
to RM1.8bn turnover and RM300m PBT combined. With two property project in Vietnam, Gamuda’s exposure to
Vietnam will hit about US$492.8m (RM1.63bn) (see Table 2). We continue not to reflect in our numbers any
earnings contribution from both the property projects in Vietnam as their maiden launches may still be subject
to delays due to various issues. In any case, contributions are likely to be insignificant during our forecast
period based on the “completion” method under the new accounting standards.

Table 2: Gamuda’s Exposure To Vietnam

Yenso Park, Hanoi Tan Thang, HCMC Total
Area (acres) 1,235 204 1,439
GDV (RMm) 10,000 6,000 16,000
Project life (years) 10 7 -
Capital outlay (US$m) 400* 92.8^ 492.8
Capital outlay (RMm) 1,320 306 1,626
Expected soft launch May 2010 Aug 2010 -
Expected official launch Aug 2010 Sep/Oct 2010 -
Expect sales in FY07/11 (US$m) 170 100 270
*Gamuda thus far only invested US$100m
^US$82.8m for a 60% stake in operating company + US$10m shareholders loan
Source: Company, RHBRI

♦ Forecasts. Maintained.

♦ Risks to our view. These include: (1) New contracts secured coming in above our target of RM1bn per annum
in FY07/10-11; and (2) Stronger-than-expected recovery in construction margins.

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♦ Risk appetite for construction stocks to improve. We are beginning to turn a little more upbeat on the
sector, prompted largely by investors’ improving risk appetite for construction stocks following: (1) The massive
underperformance of the sector vis-à-vis the market in 4Q2009 and 1Q2010; and (2) A better sector news flow
and new expectations leading up to the announcement of the 10th Malaysia Plan (10MP) in June 2010. These
may moderate negative elements such as: (1) The slow pace of the roll-out of public projects, shrinking margins
and declining dominance of established players in large-scale projects locally; and (2) The not-so-rosy outlook
and increased operating risks in key overseas markets (following the Dubai credit crisis, Dong’s devaluation and
rising arbitration cases).

♦ Maintain Underperform. However, upside in Gamuda’s share price is capped by rich valuations. Indicative
fair value is RM2.05 based on 14x CY10 EPS of 14.7sen, in line with our benchmark 1-year forward target PER
for the construction sector of 10-14x.

Table 3: Earnings Review (YoY Cumulative)

FYE Jul 2009 2010 YoY Observations/Comments
(RMm) 6M 6M Chg
Turnover 1,205.7 1,227.2 2%
Construction 962.5 923.2 (4%) In the absence of new jobs.
Property development 193.3 244.5 26% Recovery in the property market.
Concessions 50.0 59.5 19%
EBIT 91.1 115.0 26% Driven largely by improved construction margins.
Net inc/(exp) (22.2) (20.7) (7%)
Associates & JVs 69.8 79.3 14%
Pretax profit 138.6 173.7 25%
Taxation (30.3) (37.5) 24%
Minority interest (4.2) (5.2) 22%
Net profit 104.1 131.1 26% Driven largely by improved construction margins.
EPS (sen) 5.2 6.5 25%

Overall EBIT margin 8% 9% 2% pts

Construction EBIT margin 2.9% 4.7% 1.8% pts Cost pressure eased.
Pretax margin 11% 14% 3% pts
Effective tax rate 22% 22% (0% pt)

PBT breakdown*
Construction 27.9 43.1 55% Cost pressure eased.
Property development 43.5 49.4 13% Recovery in the property market.
Concessions 89.4 103.3 15% Growing water treatment plant O&M business of 80%-owned Gamuda Water,
rising capacity utilisation at SSP3 and traffic growth at LDP, KESAS and
SPRINT.
Elimination 0.0 (1.4) nm
Net inc/(exp) (22.2) (20.7) (7%)
Total 138.6 173.7 25%
*Including associates

Table 4: Earnings Review (QoQ)

FYE Jul 2010 2010 QoQ Observations/Comments
(RMm) 1Q 2Q Chg
Turnover 624.0 603.2 (3%)
Construction 466.8 456.5 (2%) Normal quarterly fluctuation.
Property development 127.8 116.6 (9%) Normal quarterly fluctuation.
Concessions 29.4 30.1 3%
EBIT 55.5 59.6 7% Driven largely by improved margins.
Net inc/(exp) (11.2) (9.5) (15%)
Associates & JVs 39.2 40.2 2%
Pretax profit 83.5 90.2 8%
Taxation (17.5) (20.0) 15%
Minority interest (3.0) (2.2) (28%)
Net profit 63.0 68.0 8% Driven largely by improved margins.
EPS (sen) 3.1 3.4 8%

Overall EBIT margin 9% 10% 1% pt

Construction EBIT margin 4.0% 5.3% 1.3% pts Cost pressure eased.
Pretax margin 13% 15% 2% pts
Effective tax rate 21% 22% 1% pt

PBT breakdown*
Construction 18.9 24.2 28% Driven by improved margins.
Property development 24.3 25.1 3% Product mix skewed towards higher-margin properties.
Concessions 52.1 51.2 (2%)
Elimination (0.7) (0.7) nm
Net inc/(exp) (11.2) (9.5) (15%)
Total 83.5 90.2 8%
*Including associates

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Table 5: Outstanding Construction Orderbook
Project Balance Of Works (RMbn)
Ipoh – Padang Besar double-tracking project 3.8
Nam Thuen 1 hydroelectric project 1.8
Yenso Park Infrastructure works 0.9
Outstanding works in the Gulf states 0.5
Total 7.0
Source: Company

Table 6: Earnings Forecasts Table 7: Forecast Assumptions

FYE Jul (RMm) FY09a FY10F FY11F FY12F FYE Jul FY10F FY11F FY12F

Turnover 2,727.3 2,958.5 3,370.5 3,194.9 Construction EBIT margin (%) 4.1 7.2 8.8
Turnover growth (%) 13.5 8.5 13.9 -5.2 New orderbook secured (RMbn) 1.0 1.0 2.0

EBITDA 197.9 257.3 363.6 397.1

EBITDA margin (%) 7.3 8.7 10.8 12.4

Depreciation -14.1 -14.8 -15.6 -16.4

Net Interest -44.8 -38.2 -76.6 -101.7
Associates 143.2 176.2 176.2 176.2
EI 0.0 0.0 0.0 0.0

Pretax Profit 282.2 380.4 447.6 455.2

Tax -78.0 -95.1 -111.9 -113.8
PAT 204.2 285.3 335.7 341.4
Minorities -10.5 -8.3 -9.2 -10.1
Net Profit 193.7 277.0 326.6 331.3
Source: Company data, RHBRI estimates

Chart 1 : Gamuda Technical View Point

♦ After hitting the lowest level since May 1999 at
RM1.25 end-Oct 2008, Gamuda rolled out an
impressive uptrend, hitting RM3.44 in Aug 2009,
before encountering a decent consolidation.

♦ It broke below RM3.06 crucial support level in Nov

2009, and headed towards the RM2.59 support
level in late Dec 2009.

♦ However, the stock managed to stabilise between a

support of RM2.59 and the Jan high of RM2.96 in
recent months.

♦ Since early this week, the stock saw a surge in

buying momentum, swinging from RM2.68 on
Monday to a high of RM2.90 yesterday, before
ending the day at RM2.84.

♦ Going forward, if it manages to sustain at above

the 10-day and 40-day SMAs near RM2.76-2.78, it
will retest Jan’s high of RM2.96 and the RM3.06
hurdle on follow-through buying supports.

♦ Its upward momentum will turn even more bullish if

it penetrates RM3.06.

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 IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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