COMPANY U PDAT E Friday, April 19, 2019 FBMKLCI: 1, 619 .73 Sector: Construction THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* GGaammuuddaa BBeerrhhaadd TP: RM3.22 (+4.5%) Last Traded: RM3.08 Penang South Reclamation Scheme Approved Hold Ooi Beng Hooi Tel: +603-2167 9612 [email protected] www.taonline.com.my NPPC Approved Penang South Reclamation Scheme Share Information The National Physical Planning Council (NPPC) has approved the reclamation Bloomberg Code GAM MK of three islands (Penang South Reclamation Scheme) south of Penang Island. Bursa GAMUDA Stock Code 5398 The project was approved with 18 conditions. Listing Main Market Share Cap (mn) 2,468.2 The three islands will have a combined area of 17 sq km, comprising Island A Market Cap (RMmn) 7602 52-wk Hi/Lo (RM) 5.20/2.00 (9.3 sq km), Island B (4.45 sq km) and Island C (3.23 sq km). 12-mth Avg Daily Vol ('000 shrs) 9415.3 Estimated Free Float (%) 51.5 The reclaimed land, which will belong to the Penang government, will be Beta 1.39 auctioned off to finance the Penang Transport Master Plan (PTMP). It is Major Shareholders (%) EPF - 12.02 estimated that the land bank is expected to generate more than RM70bn for KWAP - 5.69 the state to fund the PTMP and economic development in the state. Forecast Revision Separately, another component of the PTMP, Pan Island Link 1 (PIL1) was FY19 FY20 Forecast Revision (%) - - approved last week by the Department of Environment with 56 conditions. It Net profit (RMmn) 628.1 686.4 is targeted to commence the construction of PIL1 by middle-2020. Consensus 630.7 671.7 TA's / Consensus (%) 99.6 102.2 Meanwhile, the Komtar-Bayan Lepas LRT line is awaiting conditional approval Previous Rating Sell (Upgraded) by the Transport Ministry and is likely to be obtained soon. The construction Financial Indicators of the LRT line is expected to start next year. FY19 FY20 Net Debt / Equity (%) 49.2 47.7 CFPS (sen) 11.0 7.2 Our View Price / CFPS (x) 27.9 42.8 The approval for South Reclamation Scheme has cleared a major stumbling ROA (%) 3.6 3.8 block as the funding for the various components of the PTMP will come from NTA/Share (RM) 3.2 3.4 the sales of reclaimed land. Price/NTA (x) 1.0 0.9 Share Performance (%) Another hurdle to be cleared to get the project off the ground is sourcing of Price Change GAMUDA FBM KLCI bridging loan. As it requires time to reclaim the land and get it ready to be 1 mth 6.6 (4.0) monetised, bridging loan is required to kick-start the PIL1 and the LRT line. 3 mth 10.0 (4.3) 6 mth 28.9 (6.5) 12 mth (40.4) (14.5) We understand that both the Project Delivery Partner, SRS Consortium, in which GAMUDA has a 60% stake, and the State Government will come out (12-Mth) Share Price relative to the FBMKLCI with their own portion of the funding. This is to enable both the PIL1 and the LRT line to start concurrently. Gamuda is expected to receive first tranche payment of RM760mn soon, from the disposal of water concession SPLASH, with the remaining RM260mn to be paid in instalments over nine years. We believe a majority of the sales proceeds would be reserved to fund the PTMP project. Besides, Gamuda is in discussion with the Federal Government on the proposed disposal of four highways, namely LDP, SPRINT, KESAS and SMART Tunnel. If successful, this could raise Source: Bloomberg additional funding for the PTMP, if required. It is still uncertain at this juncture if the State Government would be able to secure a RM1bn bridging loan from the Federal Government. In the event the Page 1 of 4 19-Apr-19 request for the bridging loan is turned down by the Federal Government, we opine that the State Government could explore sourcing the funding from banks. Alternatively, the implementation of PIL1 and LRT line could be staggered instead of rolling them out concurrently, in order to ease the burden of working capital requirement. Impact Maintain our FY19 to FY21 earnings forecasts, pending further clarity on the implementation timeline of the PTMP. Valuation With better clarity and certainty of the PTMP getting the green light, we upgrade the target PE multiple for the construction division from 14x to 16x, and arrive at a revised target price of RM3.22 . Upgrade the stock to Hold following an improved outlook and better earnings visibility for GAMUDA. Exhibit 1: Overall Penang Transport Master Plan Source: PTMP official website Page 2 of 4 19-Apr-19 Exhibit 2: Financial Summary Profit & Loss (RM'mn) Balance Sheet (RM'mn) YE July 31 2017 2018 2019F 2020F 2021F YE July 31 2017 2018 2019F 2020F 2021F Revenue 3211.4 4227.1 3999.1 4453.7 4358.3 Fixed Assets 617.3 1009.2 850.1 722.7 620.9 COGS (2681.3) (3715.7) (3179.3) (3540.7) (3464.8) Land held for property development 2907.5 2783.5 2933.5 3083.5 3233.5 Gross profit 530.1 511.4 819.8 913.0 893.4 Associates + JV 2914.2 2776.0 3129.0 3513.0 3879.0 Investment Properties 309.6 363.6 363.6 363.6 363.6 EBITDA 830.1 880.1 939.3 954.0 925.1 Others 2587.1 2571.3 1911.6 1878.7 1763.2 Dep. & Amort. (147.9) (176.2) (301.8) (270.0) (244.5) LT Assets 9335.7 9503.6 9187.7 9561.4 9860.1 EBIT 682.3 703.9 637.5 684.0 680.6 Finance cost (104.3) (96.1) (156.1) (160.1) (163.6) Inventories 228.2 495.2 376.3 470.4 435.2 JV 137.8 223.7 253.0 284.0 266.0 Trade and other receivables 2473.7 2508.1 3199.2 3562.9 3486.6 Associates 208.7 205.2 100.0 100.0 100.0 Investment securities 462.4 384.2 384.2 384.2 384.2 PBT 826.0 729.3 834.4 907.9 883.0 Cash and bank balances 579.7 1238.7 1322.4 1308.4 1738.5 Adjusted PBT 924.5 1036.6 834.4 907.9 883.0 Others 2690.5 2709.4 3285.3 3400.4 3401.4 ST Assets 6434.5 7335.6 8567.4 9126.4 9445.9 Tax (169.8) (164.9) (146.9) (161.6) (156.6) MI 54.1 50.5 59.5 60.0 60.5 Total Assets 15770.2 16839.2 17755.1 18687.9 19306.0 Reported net profit 602.1 513.9 628.1 686.4 665.9 Core Net profit 700.5 818.3 628.1 686.4 665.9 Trade and other payables 1401.7 1642.2 1686.5 1877.3 1837.6 ST Borrowings 628.6 1427.0 1406.0 1385.0 1364.0 Cash Flow (RM'mn) Others 536.3 644.2 644.2 644.2 644.2 YE July 31 2017 2018 2019F 2020F 2021F ST Liabilities 2566.6 3713.5 3736.8 3906.6 3845.9 PBT 826.0 729.3 834.4 907.9 883.0 Depr & Amort 147.9 176.2 301.8 270.0 244.5 LT Borrowings 4614.6 4309.7 4459.7 4609.7 4759.7 Associate and JV (248.1) (128.8) (353.0) (384.0) (366.0) Others 743.8 864.6 1099.3 1149.3 1138.8 Other Operating CF 71.0 151.3 156.1 160.1 163.6 LT Liabilities 5358.5 5174.2 5558.9 5758.9 5898.4 OP before w/cpt change 796.8 928.0 939.3 954.0 925.1 W/cpt change (902.4) 77.1 (309.3) (399.2) 75.7 Share Cap 3372.4 3452.9 3572.9 3692.9 3812.9 Tax (180.6) (198.9) (146.9) (161.6) (156.6) Reserves 4103.6 4114.9 4443.2 4826.2 5185.1 Others (223.1) (245.7) (156.1) (160.1) (163.6) Shareholder's Funds 7476.0 7567.8 8016.2 8519.2 8998.1 CFO (509.3) 560.5 327.1 233.1 680.7 MI 369.1 383.7 443.1 503.1 563.6 Capex (442.3) (453.1) (201.4) (201.4) (201.4) Liabilities + Equities 15770.2 16839.2 17755.1 18687.9 19306.0 Others 425.2 136.1 8.7 8.7 8.7 CFI (17.1) (317.0) (192.7) (192.7) (192.7) Ratio YE July 31 2017 2018 2019F 2020F 2021F Net Addition/Rpmt 453.2 511.3 129.0 129.0 129.0 EBITDA margin (%) 25.8 20.8 23.5 21.4 21.2 Dividend Paid (292.4) (295.4) (299.8) (303.4) (307.0) Core EPS (sen) 28.6 33.3 25.1 27.2 26.0 Others 110.8 36.4 120.0 120.0 120.0 EPS Growth (%) 10.0 16.4 (24.4) 8.0 (4.1) CFF 271.6 252.2 (50.8) (54.4) (58.0) PER (x) 10.8 9.3 12.2 11.3 11.8 GDPS (sen) 12.0 12.0 12.0 12.0 12.0 Net Cash Flow (254.8) 495.7 83.7 (13.9) 430.0 Div Yield (%) 3.9 3.9 3.9 3.9 3.9 Adjustment Net cash (RMm) (4201.2) (4113.8) (4159.1) (4302.1) (4001.1) Forex (1.8) (18.0) 0.0 0.0 0.0 Net gearing (x) 0.5 0.5 0.5 0.5 0.4 Δ Deposit 7.61181.31 0.0 0.0 0.0 ROE (%) 9.8 10.9 8.1 8.3 7.6 Net change (249.0) 659.0 83.7 (13.9) 430.0 ROA (%) 4.7 5.0 3.6 3.8 3.5 NTA (RM) 3.1 3.1 3.2 3.4 3.5 P/NTA (x) 1.0 1.0 1.0 0.9 0.9 Page 3 of 4 19-Apr-19 (THIS PAGE IS INTENTIONALLY LEFT BLANK) (THIS PAGE IS INTENTIONALLY LEFT BLAN Stock Recommendation Guideline BUY : Total return within the next 12 months exceeds required rate of return by 5%-point.