Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: RHB
Gamuda Bhd
(March 11, RM3.69)
Downgrade to market perform at RM3.75 with revised fair value RM4.03 (from RM4.51): Taking a cue from the firmer construction margins recorded by peers IJM Land Bhd and WCT Bhd in their just released October to December 2010 results, we expect Gamuda's 1HFY11 results to come in within expectations. We expect Gamuda's 2QFY11 core net profit to come in at RM90 million to RM100 million. Cumulatively, 1H net profit of RM179 million to RM189 million will have grown 37% to 44% year-on-year and made up 46% to 49% of our full-year forecast and the full-year market consensus.
We downgrade our 'trading buy' call to 'market perform' on the heels of our downgrade of indicative fair value to RM4.03 from RM4.51 to reflect: (i) our expectations of a lower overall margin of 12% from the MRT project (vis-''-vis 18% previously), taking a cue from the repeated public statements from the government of late that the MRT project will be closely scrutinised to ensure maximum cost savings; and (ii) A higher 50% discount to our net present value estimates for Gamuda's property project in Vietnam (30% previously) against a backdrop of heightened economic uncertainty in Vietnam.
Also, with the news of Gamuda's involvement in the MRT already out in the open, we believe the next round of re-rating will not take place until the market is more sure about the exact timing of the 'first oil' from the project that could well be four to six quarters away given the still preliminary and tentative nature of various aspects of the project.
We maintain our forecasts. Risks to our view include: (i) New contracts secured in FY11/13 (excluding the MRT) to come in below our target of RM2 billion per year; (ii) The RM40 billion MRT project fails to get off the ground; and (iii) Rising input costs.
Over the immediate term, we expect the construction sector in general to perform only in line with the broarder market due to 'news flow fatigue'. We suspect the market is already tired of the same old news flow from the same old projects such as the LRT extension, MRT, 'River of Life' and those under the 10th Malaysia Plan (10MP). We believe that as it stands now, the market has substantially gone past the 'news flow' phase of the cycle for construction stocks.'' ' RHB Research, March 11
This article appeared in The Edge Financial Daily, March 14, 2011.
Company Name: GAMUDA BHD
Research House: RHB
Gamuda Bhd
(March 11, RM3.69)
Downgrade to market perform at RM3.75 with revised fair value RM4.03 (from RM4.51): Taking a cue from the firmer construction margins recorded by peers IJM Land Bhd and WCT Bhd in their just released October to December 2010 results, we expect Gamuda's 1HFY11 results to come in within expectations. We expect Gamuda's 2QFY11 core net profit to come in at RM90 million to RM100 million. Cumulatively, 1H net profit of RM179 million to RM189 million will have grown 37% to 44% year-on-year and made up 46% to 49% of our full-year forecast and the full-year market consensus.
We downgrade our 'trading buy' call to 'market perform' on the heels of our downgrade of indicative fair value to RM4.03 from RM4.51 to reflect: (i) our expectations of a lower overall margin of 12% from the MRT project (vis-''-vis 18% previously), taking a cue from the repeated public statements from the government of late that the MRT project will be closely scrutinised to ensure maximum cost savings; and (ii) A higher 50% discount to our net present value estimates for Gamuda's property project in Vietnam (30% previously) against a backdrop of heightened economic uncertainty in Vietnam.
Also, with the news of Gamuda's involvement in the MRT already out in the open, we believe the next round of re-rating will not take place until the market is more sure about the exact timing of the 'first oil' from the project that could well be four to six quarters away given the still preliminary and tentative nature of various aspects of the project.
We maintain our forecasts. Risks to our view include: (i) New contracts secured in FY11/13 (excluding the MRT) to come in below our target of RM2 billion per year; (ii) The RM40 billion MRT project fails to get off the ground; and (iii) Rising input costs.
Over the immediate term, we expect the construction sector in general to perform only in line with the broarder market due to 'news flow fatigue'. We suspect the market is already tired of the same old news flow from the same old projects such as the LRT extension, MRT, 'River of Life' and those under the 10th Malaysia Plan (10MP). We believe that as it stands now, the market has substantially gone past the 'news flow' phase of the cycle for construction stocks.'' ' RHB Research, March 11
This article appeared in The Edge Financial Daily, March 14, 2011.
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