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3 Things You Should Know About Gamuda
By: Brian Brinker
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By: Ong Qiuying
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Besides Gamuda’s strong position in the civil engineering industry and its likelihood of riding on the growing demand for infrastructure facilities, here are three other things you need to know about Gamuda:

Financial Highlights
Gamuda has enjoyed strong revenue growth over the last five years. In FY09, the company pulled in RM2.7 billion and this revenue had grown to RM3.9 billion in FY13.

This represented a average four-year compounded annual growth rate of 9.2 percent.

Before tax profits enjoyed a similar trajectory, rising from RM282.2 million in FY09 to RM692.6 million in FY13.

For its latest financial results, Gamuda reported a 5.3 percent increase in revenue to RM1 billion for the six months ended 31 January 2014, driven my improvements across all its business segments.

Significantly, revenue from its engineering and construction jumped the highest by 10.3 percent. Earnings for the half year period was up 11 percent to RM335.6 million.

Key Developments
• Gamuda’s joint venture (JV) with MMC Corporation, MMC-Gamuda KVMRT, is looking to set up Tunnelling Training Academy in India to train workers for public infrastructure projects. With India’s infrastructure massively underdeveloped, the government is ramping up investments and the academy would allow trainees to acquire technical know-how and expertise .

• The JV’s role as Project Delivery Partner to Mass Rapid Transit Corporation to deliver a fully operational railway system has seen cumulative progress of 39 percent completion as at end February 2014 and targeted for completion by July 2017.

• Gamuda’s property division has unbilled sales of RM1.7 billion as at end of 31 January 2014. Plans are still underway with total gross development value of RM6 billion. However, the segment would face headwinds with the government’s efforts to cool the property market.

• Gamuda has made offers to other shareholders of Kesas Holdings namely, Perbadanan Kemajuan Negeri Selangor, Permodalan Nasional and Amcorp Properties, to acquire the remaining 70-percent stake for RM980 million. Kesas is the concession holder of Shah Alam Expressway.

• Gamuda’s 40 percent owned Syarikat Pengeluar Air Sungai Selangor Holdings (Splash) received an offer of RM250.6 million from Selangor State Government. However, the net asset value of Splash amounts to RM2.5 billion, and the offer would result in a huge divestment loss of RM920 million to the company.

• The Malaysian government announced approval for the second MRT line. While bidding has not started, Gamuda, as an existing contractor, is seen as a likely project partner .

Brokers’ Recommendations & Catalysts
Investors have been quite optimistic on Gamuda’s price target with only one firm, Maybank IB Research, seeing the company’s stocks declining. Maybank set a price target of RM4.45 on an open price of RM4.59.

Public Bank is “Neutral” on Gamuda with its price target set at RM4.90. The house notes that the MMC-Gamuda JV, which is eyeing projects in India, if successful, will be the company’s foray into the country.

This comes after the group signed a memorandum of agreement with Delhi Metro for the tunneling training course.

AmResearch has a “Buy” on Gamuda with a target price of RM5.25, noting that Splash is the last player left that is needed to end the water saga.

However, there is a disparity in valuation and a fair valuation for Splash would be crucial to push the government’s restructuring exercise to completion.

Back at the end of March, Hwang-DBS Research issued a “Buy” for Gamuda, with an open price of RM4.61 and a target price of RM5.40. Kenanga Research also has a “Buy” call with an open price of RM4.67 and a target price of RM5.25.

So where is this general sense of optimism coming from? It appears that investors are confident that Gamuda will be successful in its bids for various up-and-coming projects, such as the high speed rail linking Malaysia and Singapore.

Investors also appear to be confident that the company will be successful in its bids to expand overseas. If so, earnings should rise substantially.

Price Chart Of Gamuda

Source: FactSet

This article is brought to you by Bursa Malaysia Berhad. The research in this article was conducted independently by Pioneers & Leaders (Publishers) Pte Ltd (“Pioneers & Leaders”) and the views and opinions expressed in this article are Pioneers & Leaders’ own and do not represent the views and opinions of Bursa Malaysia. Bursa Malaysia does not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article. In no event shall Bursa Malaysia be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article.
This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

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