Gamuda - the DBS Vickers Securities Equities Research

The Pulse of Asia Conference
Gamuda
Bloomberg: GAM MK | Reuters: GAMU.KL
BUY RM2.90 KLCI : 1,288.24
Price Target : 12-month RM 4.20
Potential Catalyst: Government pump priming, overseas contracts
Analyst
Chong Tjen-San, CFA +603 2711 2295
tjensan@hwangdbsvickers.com.my
Price Relative
6.20
5.20
4.20
3.20
2.20
1.20
RM
Relative Index
2006 2007 2008 2009 2010
Gamuda (LHS) Relative KLCI INDEX (RHS)
Forecasts and Valuation
FY Jul (RM m) 2009A 2010F 2011F 2012F
Turnover 2,727 3,075 4,350 4,214
EBITDA 192 314 545 554
Pre-tax Profit 282 390 618 620
Net Profit 194 278 446 448
Net Pft (Pre Ex.) 194 278 446 448
EPS (sen) 9.6 13.8 22.2 22.3
EPS Pre Ex. (sen) 9.6 13.8 22.2 22.3
EPS Gth Pre Ex (%) (41) 44 60 0
Diluted EPS (sen) 9.6 13.8 22.2 22.3
Net DPS (sen) 5.9 7.4 7.4 7.4
BV Per Share (sen) 157.3 164.0 179.0 194.1
PE (X) 30.1 20.9 13.1 13.0
PE Pre Ex. (X) 30.1 20.9 13.1 13.0
P/Cash Flow (X) 85.0 34.3 17.6 17.8
EV/EBITDA (X) 32.1 21.5 13.0 13.4
Net Div Yield (%) 2.0 2.6 2.6 2.6
P/Book Value (X) 1.8 1.8 1.6 1.5
Net Debt/Equity (X) 0.1 0.3 0.3 0.4
ROAE (%) 6.2 8.6 13.0 11.9
Earnings Rev (%): - - -
Consensus EPS (sen): 16.6 19.8 23.1
ICB Industry : Industrials
ICB Sector: Construction & Materials
Principal Business: Construction, property development and
operation of toll roads
Source of all data: Company, DBS Vickers, Bloomberg
224
204
184
164
144
124
104
84
A buying opportunity
Flurry of contracts in 2010
Strong earnings recovery in FY10-FY11F
BUY with SOP-derived PT of RM4.20
Flurry of contracts in 2010. In spite of having the highest
executable orderbook in the industry at RM5.7bn, Gamuda is
not resting on its laurels and is actively bidding for some
RM3bn projects in the Middle East and another RM1bn
locally, apart from the 3 mega projects worth RM17-18bn.
Hence, there could be a flurry of contract wins in 1HCY10.
Earnings to rebound FY10F. FY09 was a kitchen sinking
year for Gamuda. We expect earnings to rebound strongly in
FY10F-FY11F driven by normalization of margins for its
double tracking project and expectations of new order win of
RM4.1bn over the next two financial years. Local property
sales have also been robust, with 1QFY10 sales of RM250m;
implying Gamuda will likely have to revise its FY10 sales
target of RM600m.
Key concerns in the price. Two key concerns – devaluation
of Vietnam Dong and Splash have weighed down the stock.
Overall, we think the Dong weakness is net positive as 30%
of the outstanding construction work in Yenso Park of
RM1.1bn is priced in Dong and will be cheaper in Ringgit
terms while the balance 70% is priced in USD and should be
neutral. The RM8bn GDV property portion is priced in USD
and will only be launched in 2QCY10. The sale of Splash is
still in limbo and is now awaiting a new offer from the
Federal government. This should roughly be similar to the
Selangor State’s offer of RM631m for its 40% stake.
Collectively, Yenso Park and Splash contribute RM0.62 of our
SOP value of RM4.20.
Reiterate BUY, PT RM4.20. Gamuda remains a must have
large cap construction pick for exposure to the pump priming
theme. We think the retreatment in its share price is an
excellent buying opportunity.
At A Glance
Issued Capital (m shrs) 2,017
Mkt. Cap (RMm/US$m) 5,849 / 1,727
Major Shareholders
Employees Provident Fund (%) 10.9
Generasi Setia Sdn (%) 10.3
Free Float (%) 78.8
Avg. Daily Vol.(‘000) 7,311
Page 16
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: LM/ sa: WMT

The Pulse of Asia Conference
Gamuda
Company Background
Gamuda is an established Malaysian contractor which also
has interests in property, toll concessions and water
treatment and supply. Its focus has predominantly been on
local government projects but has also carved out a
reputation overseas with projects such as the Metro Tunnel,
Taiwan, New Doha International Airport and Durkhan
Highway in Qatar. Key project in hand is its RM12.5bn
electrified double tracking project done jointly with MMC
Corporation. It is now 34% complete while land acquisition
has reached 90%.
Industry Overview, Earnings Drivers & Risks
The prospects for the construction industry continue to look
favourable with expectations of the award of 3-4 mega
projects in 2010 – LCCT, LRT extensions, Pahang Selangor
Water Transfer and Bakun undersea cables and still benign
cost environment. The tabling of the 10MP in June 2010 is
another key event to monitor. Earnings will be driven by
construction in FY10F-FY12F from the normalization of
margins for its double tracking project and some realistic
assumptions on new order wins of RM4.1bn over FY10F-
FY11F. Key risks for Gamuda are timing of rollout of mega
projects, further delays and pricing in the sale of Splash and
further devaluation of the Vietnam Dong.
Outlook
In spite of having the highest executable orderbook of
RM5.7bn, Gamuda is not resting on its laurels. There are 4
Middle East contracts which Gamuda is eyeing with a
combined value of up to RM4bn. All are via open tender
apart from one in Qatar which is on a restricted tender basis.
On the local front, we understand Gamuda has already been
prequalified for two infrastructure projects worth up to
RM1bn.
Its Vietnam property project in Hanoi, Yenso Park will have its
maiden launch in May 2010 with sales of c. RM200m. Besides
Yenso Park, Gamuda is also looking to sign a JV agreement
with a Vietnamese party for a property project in Ho Chi
Minh City (HCMC). In FY11, sales from Vietnam may
potentially reach RM1bn once its HCMC project is launched.
This is expected to fill the void from Splash.
Sales Trend
RM m
4,000
56.6%
3,500
46.6%
3,000
2,500
36.6%
2,000
26.6%
1,500
16.6%
1,000
500
6.6%
0
-3.4%
2008A 2009A 2010F 2011F 2012F
Total Revenue Revenue Growth (%) (YoY)
Asset Trend
RM m
3,500
3,000
2,500
2,000
1,500
1,000
500
2008A 2009A 2010F 2011F 2012F
Net Fixed Assets (Tangible) Total Current Assets
Profitability Trend
RM m
573
523
473
423
373
323
273
223
173
2008A 2009A 2010F 2011F 2012F
Operating EBIT Pre tax Profit Net Profit
Margin Trends (%)
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2008A 2009A 2010F 2011F 2012F
EBITDA Margin % EBIT Margin % Net Income Margin %
Source: Company, DBS Vickers
Page 17

The Pulse of Asia Conference
Gamuda
Leverage & Asset Turnover (x)
Financials and Valuation
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2008A 2009A 2010F 2011F 2012F
0.7
0.7
0.6
0.6
0.5
0.5
0.4
We are expecting 3-year EPS CAGR of 30% driven by its
RM5.7bn executable orderbook and revival in local property
sales. Depending when the Sale of Splash materializes, there
could be an earnings gap in FY10-FY11. Splash contributes
c.19% of Gamuda’s pretax profit for FY09. But in the longer
term we expect the earnings void to be filled by earnings from
Vietnam. Our current forecasts exclude any potential
contribution from Vietnam.
Financial Leverage (LHS)
Asset Turnover (RHS)
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
44.0
39.0
34.0
29.0
24.0
19.0
14.0
ROE (%)
2008A 2009A 2010F 2011F 2012F
PE (x)
Gamuda’s balance sheet continued to strengthen, with net
gearing improving to 12% from 16% in 3QFY09, as payments
continued to be prompt for its double tracking project.
Nonetheless, we continue to expect net gearing to rise to 0.4x
in FY12F as it is due to draw down on its US$250m loan for
Vietnam.
Our SOP value for Gamuda is RM4.20/share. In terms of
contribution to its SOP value/share of RM4.00, construction is
the highest at RM2.15/share, followed by concessions at
RM1.24/share, local and foreign property combined at
RM0.81/share and Gamuda Water at RM0.26/share. We have
already accounted for the sale of Splash which is at
RM0.31/share.
9.0
2006 2007 2008 2009 2010
3.8
P/Book Value (x)
3.3
2.8
2.3
1.8
1.3
0.8
2006 2007 2008 2009 2010
Source: Company, DBS Vickers
Page 18

Income Statement (RM m) Balance Sheet (RM m)
The Pulse of Asia Conference
Gamuda
FY Jul 2009A 2010F 2011F 2012F FY Jul 2009A 2010F 2011F 2012F
Turnover 2,727 3,075 4,350 4,214 Net Fixed Assets 364 440 512 580
Cost of Goods Sold (2,465) (2,683) (3,672) (3,538) Invts in Associates & JVs 1,287 1,919 2,563 3,215
Gross Profit 262 393 678 675 Other LT Assets 948 948 948 948
Other Opng (Exp)/Inc (88) (103) (161) (154) Cash & ST Invts 1,255 1,066 1,141 1,201
Operating Profit 174 289 517 522 Inventory 101 106 90 77
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 1,080 1,134 964 819
Associates & JV Inc 143 133 143 152 Other Current Assets 844 844 844 844
Net Interest (Exp)/Inc (35) (32) (42) (53) Total Assets 5,878 6,457 7,061 7,683
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 282 390 618 620 ST Debt 328 728 1,128 1,528
Tax (78) (102) (161) (161) Other Current Liab 1,099 1,134 1,025 933
Minority Interest (10) (11) (11) (11) LT Debt 1,211 1,211 1,211 1,211
Preference Dividend 0 0 0 0 Other LT Liabilities 33 33 33 33
Net Profit 194 278 446 448 Shareholder’s Equity 3,161 3,294 3,596 3,899
Net Profit before Except. 194 278 446 448 Minority Interests 47 58 69 80
EBITDA 192 314 545 554 Total Cap. & Liab. 5,878 6,457 7,061 7,683
Sales Gth (%) 13.5 12.8 41.4 (3.1) Non-Cash Wkg. Capital 925 950 873 807
EBITDA Gth (%) (39.4) 63.6 73.9 1.5 Net Cash/(Debt) (284) (873) (1,198) (1,538)
Opg Profit Gth (%) (41.6) 66.6 78.7 0.9
Net Profit Gth (%) (40.4) 43.6 60.5 0.3
Effective Tax Rate (%) 27.6 26.0 26.0 26.0
Cash Flow Statement (RM m)
Rates & Ratio
FY Jul 2009A 2010F 2011F 2012F FY Jul 2009A 2010F 2011F 2012F
Pre-Tax Profit 282 390 618 620 Gross Margins (%) 9.6 12.8 15.6 16.0
Dep. & Amort. 18 24 28 32 Opg Profit Margin (%) 6.4 9.4 11.9 12.4
Tax Paid (106) (102) (161) (161) Net Profit Margin (%) 7.1 9.0 10.3 10.6
Assoc. & JV Inc/(loss) (143) (133) (143) (152) ROAE (%) 6.2 8.6 13.0 11.9
Chg in Wkg.Cap. 376 (24) 77 66 ROA (%) 3.3 4.5 6.6 6.1
Other Operating CF 183 (29) (31) (33) ROCE (%) 2.6 4.2 6.7 6.0
Net Operating CF 609 127 388 372 Div Payout Ratio (%) 61.4 53.5 33.3 33.2
Capital Exp.(net) (57) (100) (100) (100) Net Interest Cover (x) 5.0 9.1 12.2 9.8
Other Invts.(net) (81) 0 0 0 Asset Turnover (x) 0.5 0.5 0.6 0.6
Invts in Assoc. & JV (21) (500) (500) (500) Debtors Turn (avg days) 160.6 131.4 88.0 77.2
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 108.8 97.3 67.2 59.4
Other Investing CF 208 29 31 33 Inventory Turn (avg days) 15.8 14.2 9.8 8.7
Net Investing CF 50 (571) (569) (567) Current Ratio (x) 2.3 1.7 1.4 1.2
Div Paid (60) (145) (145) (145) Quick Ratio (x) 1.6 1.2 1.0 0.8
Chg in Gross Debt (297) 400 400 400 Net Debt/Equity (X) 0.1 0.3 0.3 0.4
Capital Issues 8 0 0 0 Net Debt/Equity ex MI (X) 0.1 0.3 0.3 0.4
Other Financing CF 79 0 0 0 Capex to Debt (%) 3.7 5.2 4.3 3.7
Net Financing CF (270) 255 255 255 Z-Score (X) 2.2 2.6 2.4 2.4
Net Cashflow 389 (189) 75 60 N. Cash/(Debt)PS (sen) (14.1) (43.4) (59.6) (76.5)
Opg CFPS (sen) 11.6 7.5 15.5 15.2
Free CFPS (sen) 27.5 1.3 14.3 13.5
Quarterly / Interim Income Statement (RM m)
Segmental Breakdown / Assumptions
FY Jul 2Q2009 3Q2009 4Q2009 1Q2010 FY Jul 2009A 2010F 2011F 2012F
Turnover 592 579 942 624 Revenues (RM m)
Cost of Goods Sold (556) (540) (913) (576) Construction 2,220 2,681 3,852 3,763
Gross Profit 35 40 29 48 Property development 407 290 390 343
Other Oper. (Exp)/Inc 8 9 16 7 Infrastructure 100 104 108 108
Operating Profit 43 48 45 55
Other Non Opg (Exp)/Inc 0 0 0 0 Total 2,727 3,075 4,350 4,214
Associates & JV Inc 35 29 44 39
Net Interest (Exp)/Inc (11) (14) (9) (11) Pretax profit (RM m)
Exceptional Gain/(Loss) 0 0 0 0 Construction 63 215 425 430
Pre-tax Profit 67 63 80 83 Property development 84 87 109 102
Tax (16) (14) (33) (17) Infrastructure 180 159 168 176
Minority Interest (2) (2) (4) (3) Others (45) (71) (84) (87)
Net Profit 49 46 43 63
Net profit bef Except. 49 46 43 63 Total 282 390 618 620
Pretax profit Margins (%)
Sales Gth (%) (3.6) (2.1) 62.6 (33.8) Construction 2.8 8.0 11.0 11.4
Opg Profit Gth (%) (10.5) 11.7 (7.0) 24.2 Property development 20.7 30.1 28.0 29.8
Net Profit Gth (%) (10.9) (5.6) (6.5) 45.6
Gross Margins (%) 6.0 6.8 3.1 7.7 Total 10.3 12.7 14.2 14.7
Opg Profit Margins (%) 7.3 8.3 4.7 8.9
Net Profit Margins (%) 8.3 8.0 4.6 10.1 Key Assumptions
Construction orderbook N/A 1,623.0 2,500.0 3,000.0
Source: Company, DBS Vickers
Page 19

The Pulse of Asia Conference
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (0-15% total return over the next 12 months for small caps, 0-10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
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