Gamuda 1QFY09 : Earnings and dividend shocker

December 19, 2008 at 7:55 am Leave a comment

· Significantly below expectations
1QFY09 results were significantly below house and market expectations. Annualised net profit fell short of house and consensus estimates by 44% and 42% respectively as a result of lower margins and project delays.
· Revenue +27.3% y-o-y, net profit -37.5% y-o-y
Although revenue was higher y-o-y, it was 27.9% lower q-o-q due to delay in the double tracking project as the authorities have only handed over 61% of the land instead of 95% according to plan. This will push back the completion of the project by a year to 2013. Sales of land parcels in Yen So Park (not accounted for in our estimates) will be deferred due to depressed prices currently, as well as difficulty in securing financing by investors. In the property division, sales have plummeted to just RM80m in 1QFY08 against management’s earlier annual target of RM1bn.
We were surprised by further margin compression despite the easing of building materials prices since July 2008. Overall EBIT margin declined to 7.8% from 15% a year earlier. We suspect this to be due to a kitchen sinking exercise and margins may recover strongly post-FY2009 if building materials prices stay at current levels or go even lower. Near term outlook remains cloudy as (1) order book replenishment is uncertain, (2) Nam Theun 1 hydropower project is set to be delayed
further as political uncertainties in Thailand hamper tariff negotiations, (3) slow progress in the sale of water assets, and (4) property sales will continue to be sluggish.
· Dividend slashed
An interim dividend of 4 sen gross has been declared, a sharp cut from 12.5 sen in 1QFY08. Management is conserving cash going forward in view of a more challenging environment. We have reduced our full year dividend estimate to 8 sen gross (6 sen net).
· Still undervalued
We have slashed our earnings estimate for FY09 and FY10 by 38.4% and 42.5% respectively to account for (1) delay in progress of construction jobs, (2) lower margins, and (3) lower property sales in FY2009. Our target price which is based on sum-of-parts valuation has been reduced
from RM2.74 to RM2.28. Our BUY call is maintained as the stock is still undervalued after our significant cut on earnings and valuation.

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18 December 2008 Newz Bits December 18, 2008 Daily Highlights

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