Gamuda. Malaysia Company Focus. More upside, special dividends. DBS Group Research. Equity 14 May 2013

Transcription

1 Malaysia Company Focus Bloomberg: GAM MK Reuters: GAMU.KL Refer to important disclosures at the end of this report DBS Group Research. Equity 14 May 2013 BUY RM KLCI : 1, Price Target : 12-month RM 5.40 (Prev RM 4.75) Reason for Report : Meeting with Dato Lin, raised earnings and TP Potential Catalyst: MRT Line 2, Southern double-tracking DBSV vs Consensus: In line Analyst CHONG Tjen San, CFA tjensan@hwangdbsvickers.com.my Price Relative RM Relative Index May-09 May-10 May-11 May-12 May-13 Forecasts and Valuation (LHS) Relative KLCI INDEX (RHS) FY Jul (RM m) 2012A 2013F 2014F 2015F Revenue 3,087 4,683 5,416 5,604 EBITDA Pre-tax Profit ,001 Net Profit Net Pft (Pre Ex.) EPS (sen) EPS Pre Ex. (sen) EPS Gth (%) 28 (20) 54 8 EPS Gth Pre Ex (%) 28 (20) 54 8 Diluted EPS (sen) Net DPS (sen) BV Per Share (sen) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): (25.7) Consensus EPS (sen sen): Other Broker Recs: B: 16 S: 1 H: 9 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 Finance L.P More upside, special dividends Orderbook to triple within 18-months Raised earnings after imputing higher tunneling margins May pay special dividends if it sells toll roads Maintain BUY, raised TP of RM5.40 Orderbook to triple. With elections behind us, is poised to triple its RM4.2bn construction orderbook within the next 18-months. This will come from three projects i) MRT Radial line tunneling; ii) Southern double-tracking, and iii) Langat 2 water treatment plant. We are the most optimistic of clinching the first two projects as its involvement in the current SBK MRT and northern double-tracking projects gives it a cost-advantage with continuity of resources. Radial line progress. Dato Lin gave more clarity on the timeline for MRT Line 2 which is the RM24.9bn Radial line that will link Sg. Buloh, Serdang and Putrajaya. The project will be tabled to the cabinet soon for approval possibly as early as July. Following this, there may be a major catalyst in the form of the announcement of the PDP role we feel it has a strong chance of securing that. Using a two-year time frame for land acquisition, public feedback and design, construction should start in mid This time line would allow to make effective use of resources given that most of the civil works for the SBK MRT would be concluded by then. Raising FY14-FY15F earnings. This was after we imputed stronger margin of 12% for the SBK MRT vs 10% previously, and lower execution risk. However, we cut headline FY13F net profit by 26% after including RM119m legal compensation to be booked in 3QFY13. BUY, raised TP of RM5.40. Valuations remain attractive despite the recent run up in the share price, at 15x FY14F PE and 2.1x P/NTA (above mean and below peaks of +2SD). Our revised TP reflects overall higher blended SBK tunneling margins and conservative new win assumptions. If the sale of toll roads materialise, may pay special dividends equivalent to 11% yield assuming it pays out half the proceeds. At A Glance Issued Capital (m shrs) 2,167 Mkt. Cap (RMm/US$m) 10,291 / 3,446 Major Shareholders Employees Provident Fund (%) 10.9 Generasi Setia Sdn (%) 10.3 Free Float (%) 78.8 Avg. Daily Vol.( 000) 8,638 In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore. Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd ( DBSVR ), are to contact DBSVR at in respect of any matters arising from or in connection with this report. ed: SGC / sa: WMT

2 Raised SOP value We raised SOP-derived TP to RM5.40 from RM4.75 after adjusting for the following: i) Higher blended margins for SBK MRT tunneling works of 12% vs 9-10% previously in our DCF model, and ii) Inclusion of RM2.5bn potential new wins in our SOP model; this is just a quarter of its potential pipeline over the next 18-months. Future construction wins look strong The biggest overhang for had been the 13 th General Election. With that concluded and the ruling coalition given a fresh mandate, it should benefit the most among contractors in our universe because most of its projects are government-linked. We foresee continuity in terms of project rollouts from the government, where stands to benefit from three major projects in the pipeline: i) RM24.9bn Line 2 for Sungai Buloh-Serdang Putrajaya (tunneling works worth RM9-10bn for MRT Line 2); ii) RM8bn southern doubletracking project, and iii) RM1.5bn Langat 2 water treatment plant. has a strong chance of clinching the first two projects because of its participation in the current SBK MRT line and northern double-tracking project. It will have an edge in term of costing because of the continuity of resources. We understand the feedback thus far from MRT Co. and SPAD is that the MMC- JV has a good performance track record, and we are confident it will be the PDP for Line 2 as well. For the Langat 2 water treatment plant, we understand it is one of two short-listed contractors. More clarity on MRT Line 2 can expect cabinet approval by July at the earliest and tenders might open in early Using a similar twoyear lead time for the SBK line to estimate the time frame for land acquisition, public feedback and design, construction should start in mid-2015 with completion in The announcement on of the PDP role expected to be out shortly after cabinet approval could be a positive catalyst. - Line 2 is supposed to have the highest ridership among all railway projects (LRT and MRT), estimated at 550k pax/day. This is 20% higher than Line 1 and 50% higher than Line 3 (Circle line) because of a larger catchment area in less affluent areas such as Batu, Sentul, Kampung Baru, Tun Razak Exchange, Pandan and Serdang. - Construction cost is estimated at RM24.9bn based on today s prices, and will be implemented in two phases (Phase 1: Sg. Buloh-Serdang, and Phase 2: Serdang- Putrajaya). High Speed Rail project The Group MD also highlighted that the MRT project would likely take precedence over the High Speed Rail (HSR) project. It is early days for the HSR as the project value cannot be determined until after the alignment has been finalised. Although both the governments of Malaysia and Singapore have given the nod for this project, there is a lot to be done e.g. forming Joint Committees to undertake more detailed feasibility studies. In any case, we like s chances for this project. This project will involve foreign contractors, but s established reputation here will enable it to secure a significant role. We understand the participation of local contractors is crucial given their better understanding of the supply chain and ability to interact better with smaller local contractors for outsourced work. Below are the salient points: - The next MRT line to be rolled out will be Line 2 or the Sg. Buloh-Serdang Putrajaya line. It will be 56km long, of which 11 km will be underground and 45 km elevated. - The project will be tabled to cabinet soon as the feasibility study had been completed in April We Page 2

3 One-off litigation charge in 3QFY13 has announced two negative litigation outcomes in April. It is expected to book RM119m (or RM0.06/share) one-off compensation cost in 3QFY13. The first is in relation to an arbitration case with Wayss & Freytag for the SMART tunnel project - and MMC have 50% equity interest each in the MMCEG- JV. s share is RM91.9m including additional order of interest at 4% p.a. The second is for a project in Qatar jointly executed with WCT. s share is RM27.4m. Some resolution on water, sale of toll roads may be sooner rather than later Based on s announcement, it appears to be keen on the offer but is seeking some clarification on the terms. Based on the 6 March 2013 acceptance deadline, the offer has technically lapsed unless extended by the State. For its toll highways, they may be disposed to the government before the sale of its water assets. owns 56% stake in Litrak, 50% of the SMART tunnel concession, and 30% direct interest in each of Sprint and Kesas highways. Of the four toll concessions, we understand Litrak, Sprint and Kesas may be sold if the price is right. Based on our DCF metric, the sale of all three toll concessions could raise RM2.3bn or RM1.08/share. Assuming half is paid as special dividends, investors can look forward to a one-off yield of 11%. With the Selangor is still under the opposition government, the water consolidation exercise may not be concluded so soon. But there has been a more serious attempt by the State to conclude this with an offer to all concessionaires in February To recap, it offered RM1.835bn for Splash where s 40% share works out to RM734m or RM0.341/share. The valuation is based on 12% p.a. ROE and assuming all of Splash s outstanding water-related debt. The PAAB will decide on payment of surplus book value of assets over liabilities, and if agreeable, the PAAB will pay the applicable concessionaires directly. : Forward PE and P/NTA band PE x nd dev st dev Mean -1st dev -2nd dev P/NTA x nd dev st dev 2.00 Mean st dev nd dev Source: DBS Vickers Page 3

4 SOP Value Div ision Stak e Subtotal SOP SOP/share Method % RMm RMm Construction - A bov e ground DCF and PE Const ruction - MRT 50% DCF and PE Construction - Potential new wins Local Property Kota Kemuning NPV of profits Valencia NPV of profits Bandar Botanic NPV of profits Horizon Hills NPV of profits Jade Hills NPV of profits Madge Mansions NPV of profits Jalan Pudu NPV of profits Unbilled sales NPV of profits Net Tangible Asset Subtotal F oreign Property Yenso Park Hanoi V ietnam NPV of profits Tan Thang development NPV of profits Water Water DCF Cash assuming conversion of warrants Assume at previous offer Tolls LDP DCF Sprint DCF Kesas DCF Panargarh Palsit DCF Durgapur DCF Subtotal DCF Less net debt for FY Add cash receipts for Splash Total SOP Number of shares outstanding (m) Warrants issue Fully diluted number of shares (m) SOP/share (RM) 5.37 Source: DBS Vickers Page 4

5 Key Assumptions Construction orderbook 3, , ,000.0 Sensitivity Analysis +RM500m new wins 2013 Net Profit +3% Segmental Breakdown Revenues (RM m) Construction 1,842 1,898 3,555 3,863 3,656 Property development 705 1, Infrastructure Others N/A ,090 Total 2,673 3,087 4,683 5,416 5,604 Pretax profit (RM m) Construction Property development Infrastructure Others N/A Others (59) (64) (38) (49) (55) Total ,001 Pretax Margins (%) Construction Property development Anchored by SBK MRT and PDP fees Still strong sales from Horizon Hills Total Income Statement (RM m) Margins Trend Revenue 2,673 3,087 4,683 5,416 5,604 Cost of Goods Sold (2,269) (2,459) (4,031) (4,424) (4,530) Gross Profit ,075 Other Opng (Exp)/Inc (80) (97) (169) (202) (209) Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (1) (9) (38) (49) (55) Exceptional Gain/(Loss) Pre-tax Profit ,001 Tax (112) (162) (161) (232) (250) Minority Interest (8) (19) (19) (19) (19) Preference Dividend Net Profit Net Profit before Except EBITDA Growth Revenue Gth (%) EBITDA Gth (%) (8.5) Opg Profit Gth (%) (9.2) Net Profit Gth (%) (19.8) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Source: Company, DBS Vickers 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 2011A 2012A 2013F 2014F 2015F Operating Margin % Net Income Margin % More significant contribution from MRT tunneling works Page 5

6 Quarterly / Interim Income Statement (RM m) FY Jul 2Q Q2012 4Q2012 1Q2013 2Q Revenue Cost of Goods Sold (629) (558) (833) (641) (725) Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (19) (15) (14) (17) (20) Exceptional Gain/(Loss) Pre-tax Profit Tax (41) (52) (36) (34) (41) Minority Interest (11) (6) 0 (2) (5) Net Profit Net profit bef Except EBITDA Growth Revenue Gth (%) 19.8 (8.2) 37.4 (20.5) 13.5 EBITDA Gth (%) (9.2) Opg Profit Gth (%) (4.6) (5.2) 11.9 Net Profit Gth (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Revenue Trend 1,200 1, Q2011 2Q2011 3Q2011 Revenue 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 Revenue Growth % (QoQ) A strong quarter for construction and property Construction margins held up 2Q % 40% 30% 20% 10% 0% -10% -20% -30% Balance Sheet (RM m) Net Fixed Assets Invts in Associates & JVs 1,620 1,660 2,434 3,221 4,011 Other LT Assets 1,040 1,236 1,236 1,236 1,236 Cash & ST Invts 1,386 1,616 1,459 1,533 1,767 Inventory Debtors 1,115 1,095 1,260 1,449 3,115 Other Current Assets 2,011 2,445 2,445 2,445 2,445 Total Assets 7,551 8,494 9,360 10,492 13,352 ST Debt 626 1,327 1,727 2,127 2,527 Creditor 906 1,252 1,439 1,655 3,559 Other Current Liab LT Debt 1, Other LT Liabilities Shareholder s Equity 3,687 4,048 4,307 4,805 5,342 Minority Interests Total Cap. & Liab. 7,551 8,494 9,360 10,492 13,352 Non-Cash Wkg. Capital 1,620 1,833 1,820 1,804 1,668 Net Cash/(Debt) (571) (583) (1,141) (1,467) (1,633) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) Asset Breakdown (2013) Inventory - 1.3% Debtors % Net Fixed Assets - 7.9% Still strong balance sheet Bank, Cash and Liquid Assets % Assocs'/JVs % Source: Company, DBS Vickers Page 6

7 Cash Flow Statement (RM m) Pre-Tax Profit ,001 Dep. & Amort Tax Paid (110) (153) (161) (232) (250) Assoc. & JV Inc/(loss) (222) (206) (174) (187) (190) Chg in Wkg.Cap. (475) (295) Other Operating CF 20 (31) (44) (45) (52) Net Operating CF (221) Capital Exp.(net) (117) (85) (100) (100) (100) Other Invts.(net) Invts in Assoc. & JV 0 0 (600) (600) (600) Div from Assoc & JV Other Investing CF (133) Net Investing CF (656) (655) (648) Div Paid (323) (249) (180) (180) (195) Chg in Gross Debt Capital Issues Other Financing CF (475) (6) Net Financing CF (541) (22) Currency Adjustments Chg in Cash (564) 231 (157) Opg CFPS (sen) Free CFPS (sen) (16.3) (0.9) Source: Company, DBS Vickers Capital Expenditure A 2012A 2013F 2014F 2015F Exclude special dividends Capital Expenditure (-) Target Price & Ratings History RM S.No. Da te Closing Ta rge t Pric e Pric e Ra ting 1: 29 Jun Buy 2: 28 Sep Buy 3: 15 Jan Buy 4: 20 Feb Buy 5: 22 Apr Buy May-12 Sep-12 Jan-13 Note : Share price and Target price are adjusted for corporate actions. Source: DBS Vickers Page 7

8 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 (-10% to +15% total return over the next 12 months for small caps, -10% to +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 DBS Vickers Research is available on the following electronic platforms: DBS Vickers ( Thomson ( Factset ( Reuters ( Capital IQ ( and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVR. It is being distributed in the United States by DBSV US, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBS Vickers Securities (USA) Inc ( DBSVUSA ) directly and not its affiliate. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVR, DBSVS, and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVR accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVR, DBSVS and/or DBSVH (and/or any persons associated with the aforesaid entities), that: (a) (b) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 14 May 2013, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report ( interest includes direct or indirect ownership of securities, directorships and trustee positions). Page 8

9 COMPANY-SPECIFIC / REGULATORY DISCLOSURES D 1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as of 10-May DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered brokerdealer, may beneficially own a total of 1% or more of any class of common equity securities of the company mentioned as of 14 May Compensation for investment banking services: i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the company mentioned. ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia Hong Kong Singapore United Kingdom Dubai/ United Arab Emirates United States Other jurisdictions This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to hold an Australian financial services licence under the Corporation Act 2001 [ CA] in respect of financial services provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [ MAS ] under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for wholesale investors within the meaning of the CA. This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission. This report is being distributed in Singapore by DBSVR, which holds a Financial Adviser s licence and is regulated by the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No G), which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research report produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chap. 289 of Singapore. Any distribution of research reports published by a foreign-related corporation of DBSVR/DBSVS to Accredited Investors is provided pursuant to the approval by MAS of research distribution arrangements under Paragraph 11 of the First Schedule to the FAA. This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in the UK is intended only for institutional clients. This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box , 3 rd Floor, Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet the DFSA regulatory criteria to be a Professional Client. It should not be relied upon by or distributed to Retail Clients. DBS Bank Ltd, Dubai is regulated by the Dubai Financial Services Authority. Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers Research (Singapore) Pte Ltd 12 Marina Boulevard, Level 40, Marina Bay Financial Central Tower 3, Singapore Tel Company Regn. No W Page 9