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 Pr e v i e w
15 June 2010
MARKET DATELINE

Gamuda Share Price

Fair Value
:
:
RM2.95
RM2.74
9MFY07/10 Results To Meet Expectations Recom : Underperform
(Maintained)

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) 29.0 - 8.5 1.8 6.2 0.1 2.9
2010f 2,958.5 277.0 13.6 41.4 20.5 16.0 (8.9) 1.7 8.1 0.2 4.3
2011f 3,370.5 326.6 16.1 17.9 17.4 19.0 (10.0) 1.5 8.7 0.4 4.3
2012f 3,194.9 331.3 16.3 1.5 17.2 23.0 nm 1.4 8.1 0.5 4.3
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC #Ex-EI * Consensus Based On IBES Estimates

To meet expectations. Taking the cue from the improved construction Issued Capital (m shares) 2,018.7
margins recorded by peers IJM and WCT in their just-released Jan-Mar Market Cap(RMm) 5,955.2
2010 results, we expect Gamudas 3QFY07/10 results, due out by the end Daily Trading Vol (m shs) 7.3
52wk Price Range (RM) 1.85-3.38
of the month, to come in roughly within expectations. We expect
Major Shareholders: (%)
Gamudas 3QFY07/10 core net profit to come in at RM80-85m, vis--vis
EPF 10.1
RM68m recorded in 2QFY07/10. Cumulatively, 9M net profit of RM211- Raja Dato Seri Eleena 7.4
216m is equivalent to 76-78% of our full-year forecast and 70-72% of the Platinum Investment 6.2
full-year market consensus.
FYE Jul FY10 FY11 FY12
Margin recovery gathers momentum. At RM211-216m, net profit in EPS Revision (%) - - -
9MFY07/10 will have grown 40-44% yoy, in line with our full-year Var to Cons (%) -9 -15 -29
projection of 43%, premised upon a strong recovery in construction
margins that appears to have begun to show in the sector. Over the last PE Band Chart

three months, IJMs construction PBT margin recovered from 2.2% to

3.1%, while WCTs construction EBIT margin (adjusted for inter-company
elimination) jumped from 0.8% to 12% (see Chart 1) as cost pressure
eased.
PER = 30x
Forecasts. Maintained.
PER
PER
=
=
25x
20x
PER = 15x
Risks to our view. These include: (1) New construction contracts
secured coming in above our target of RM1bn per annum in FY07/10-11;
and (2) A stronger-than-expected recovery in construction margins. Relative Performance To FBM KLCI

We are Neutral on the construction sector. On one hand, we foresee

improved investors risk appetite for construction stocks following: (1) The
massive underperformance of the sector vis--vis the market in 4Q2009
FBM KLCI
and 1H2010; and (2) A better sector news flow and new expectations on
the heels of the announcement of the 10th Malaysia Plan (10MP). On the Gamuda
other hand, certain negative elements remain such as: (1) The still slow
pace of the roll-out of public projects, a highly competitive market 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.
Maintain Underperform as upside exhausted. Indicative fair value is
RM2.74, valuing its operations ex-Vietnam at 14x fully-diluted CY11 EPS of
15.7sen, in line with our benchmark 1-year forward target PER of 10-14x Joshua CY Ng
for the construction sector, and its two property projects in Vietnam based (603) 92802151
on a 30% discount to their NPV, translating to 54sen per Gamuda share on joshuang@rhb.com.my
a fully-diluted basis (see Table 2).

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 15 June 2010

Chart 1: Quaterly Construction Margins (%)

15

10

0
Jul-Sep 08 Oct -Dec 08 Jan-M ar 09 Apr-Jun 09 Jul-Sep 09 Oct -Dec 09 Jan-M ar 10

-5

-10

Gamuda IJM WCT

*Source: Bursa Malaysia Announcements, RHBRI

Note: For Gamuda, periods represent Aug-Oct 08, Nov 08 Jan 09, Feb Apr 09, May-Jul 09, Aug-Oct 09 and Nov 09 Jan 10
Margins at EBIT (adjusted for inter-company elimination) level for WCT, and PBT for Gamuda & IJM, in accordance with their respective
segmental breakdown formats as announced to Bursa Malaysia

Table 2: Sum-Of-Parts Valuation

Segment RMm RM/shr Basis
Operations ex-Vietnam 5,023 2.20 14x fully-diluted CY11 net profit of RM358.8m or 15.7sen/shr
Vietnam 1,231 0.54 Yenso Park, Hanoi: GDV of RM10bn and project life of 10 years
Tan Thang, HCMC: GDV of RM6bn and project life of 7 years
PBT margin of 25%, tax rate of 25% and benchmark discount rate of 10% for
property projects. A 30% discount to NPV of RM1,759m to reflect country risk
Total 6,254 2.74

Table 3: 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 4: Earnings Forecasts Table 5: 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

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 Chart 2: Gamuda Technical View Point
Just after hitting a low of RM2.70 in end-May 2010,
Gamudas share price instantly triggered a strong
technical rebound to above the 10-day and 40-day
SMAs.

It marched further to the RM3.03 high yesterday,

before easing off from the days high to settle at
RM2.99 on mild profit-taking activities.

Chart wise, with the bullish engulfing candle and

a newly triggered golden cross signal between the
10-day and 40-day SMAs, chances are high for it to
cover a technical gap near RM3.04 soon.

Nevertheless, without the confirmation momentum

signal, we do not think it has the ability to take out
the heavy support-turned-resistance level at
RM3.06.

On the downside risk, selling will resume upon

breaching below the 10-day and 40-day SMAs of
RM2.946 and RM2.936 respectively. Meanwhile, a
higher resistance is set at RM3.33.
IMPORTANT DISCLOSURES

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

Stock Ratings

Outperform = The stock return is expected to exceed the FBM 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 FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

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

Industry/Sector Ratings

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

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

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

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