Gamuda – Profit warning

December 17, 2008 at 2:14 am Leave a comment

· Project delays will hurt earnings
Following Gamuda’s annual general meeting yesterday, managing director Dato’ Lin Yun Ling had reportedly issued a profit warning to the shareholders. The company will post lower 1QFY09 results, which is due to be released this evening. Full year earnings in FY2009 will also be lower than FY2008 due to project delays. Land sale in Yen So Park, Hanoi will be delayed as prices are depressed at the moment and investors have difficulty securing financing.
The other delay came from the Ipoh-Padang Besar double track project as the company faced problems with land acquisition in Penang because of squatter issues. The 5-year project is now likely to be delayed by a year. On the possible scaling down of the double tracking project, Dato’ Lin said Gamuda had received a letter from the government two months ago stating that the project would not be scaled down. However, the payment terms for the part of the project have now been changed to a deferred basis by the government. Funding would have to come from entities such as Employees Provident Fund and Bank Pembangunan on the back of the government’s undertaking to pay them later.
· Dividend will also be lower
Besides the profit warning, Gamuda has also alluded to the possibility of lower dividend payouts going forward in order to conserve cash. The company paid a gross dividend of 25 sen per share in FY2008 which was mainly backed by capital repayment from its highway concession
business. The net debt level of Gamuda is expected to rise from 31.9% in FY2008 to 53.8% in FY2010 as the rehabilitation works of Yen So Park worth RM1.5bn is required to be fully funded by the company. While recording accounting profit, the company will not be receiving any cash
payment from the Vietnam government as it would be paid in kind with land.
· Earnings estimate and valuation to be reviewed
Based on our existing earnings estimate, we expect 1QFY09 results to be significantly below our expectation as well as market consensus. Gamuda will be holding an analyst briefing this evening in conjunction with the release of its 1QFY09 results. We will critically review our earnings estimate and valuation for possible downgrade once we have sought further clarification from the management.

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