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4QFY21: Projects Rollout Timeline Remains Uncertain

Gamuda’s 4QFY21 core net profit of RM214m (+51% qoq, +58% yoy) was above our and consensus’ expectations, due to lumpy recognition from Celadon City project and MRT2 Phase 1 completion. Earnings are expected to normalise in the upcoming quarter. The company is in need of new jobs with the MRT2 project nearing completion. Winning the Australian jobs and the rollout of the MRT3 project will bode well for the company. Maintain HOLD with revised target price of RM3.50.

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RESULTS

  • 4QFY21 above expectations. Gamuda Berhad (Gamuda) reported a bumper 4QFY21 core net profit of RM214m (+50.9% qoq, +57.9% yoy) on revenue of RM886.7m (-8.7% qoq, – 4.3% yoy). This brings FY21 core net profit to RM588.3m (+12.1% yoy), accounting for 124% and 120% of our and consensus’ full-year estimates respectively.
  • The positive variance was mainly due to stronger-than-expected earnings contribution from the Celadon City project which previously faced permit issues and the MRT2 project after the completion of Phase 1. The Celadon City project’s contribution is expected to decline moving forward now that it is nearing completion while it is uncertain if there will be another bumper earning from the MRT2 Phase 2 project as it depends on the remaining cost required to complete the project.
  • Construction: MRT2 drove construction earnings. Gamuda’s 4QFY21’s construction PBT improved (+65% qoq) to RM133.2m, mainly driven by the MRT2 contribution given that Phase 1 of the project has been completed. This also contributed to the improvement in its PBT margin (+4.4 ppt) compared to the previous quarter.
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  • Property: Lumpy recognition from Celadon City. The big jump in the division’s profitability was mainly due to the Celadon City project’s lumpy contribution. The permit issues that the development faced previously have now been resolved. Gamuda reported that it achieved RM0.7b of presales in 4QFY21, which brought FY21 presales to RM2.9b. Gamuda has set presales target of RM3.5b for FY22, implying a 20.7% growth. The company’s unbilled sales currently stand at RM4.6b.
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STOCK IMPACT

  • New job needed. With the MRT2 project nearing completion (83% completed, expected to be completed in 2022), Gamuda needs to replenish its orderbook to ensure the sustainability of its earnings. The company’s bid for the SMW’s Central Tunneling package (contract value estimate: RM8.3b) was unsuccessful. Gamuda is currently awaiting the results of the remaining two Australian jobs: a) the SMW’s Western Tunnelling package (contract value estimate: RM6.8b), and b) Airport Link tunnelling package (contract value estimate: RM8b). The results are expected to be announced within the next 6-7 months. Meanwhile, there is no new update on the MRT3 project rollout. We believe that no mention of the project during the tabling of Malaysia 12th Plan (12MP) further attests to the fact that the project could be implemented through private financing initiatives.
  • 12MP: Projects will be implemented in phases to ensure fiscal sustainability. Under the 12MP, the government reiterated its intention to continue with the Pan Borneo Highway, East Coast Rail Link (ECRL) and Rapid Transit System projects. RM400b of development expenditure (DE) was allocated, higher than Malaysia 11th Plan’s DE of RM260b. However, the DE will be back loaded with most of it utilised from 2023 onwards, once the country recovers from the pandemic. Separately, the government will be allocating facilitation funds for future infrastructure projects under the Public-Private Partnership (PPP) model. More details on this will be shared in mid-22.
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  • PSR of Island A – EIA needs resubmission. The Penang state government will be resubmitting the environmental impact assessment (EIA) report for the Penang South Reclamation (PSR) project to the Department of Environment after its previous submission did not comply with the Section 34A (4) (a) of the Environmental Quality Act 1974 requirement. This will delay the construction work which was previously expected to commence in August this year. Gamuda expects that this will result in the delay of the project by up to eight months.