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Gamuda Bhd 1Q results were within expectations at 32% for the full-year forecast and 26% for the full-year consensus estimates. Gamuda originally expected a weaker second half as it was assumed that the disposal of their toll roads would have been completed by then, resulting in an absence of their toll road profits.

Their net core profit in 1QFY20 grew 1% year-on-year despite stronger sales and firm margins from their properties in Vietnam, which were offset by the weaker performance from the downsized Mass Rapid Transit Line 2 (MRT2) contract, and the disposal of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash).

Their recorded property sales in 1QFY20 of RM500 million were largely from their Vietnamese properties, which contributed a total of 60%. The remaining 40% of the sales came from Gamuda’s local townships including Gamuda Gardens, Rawang, Gamuda Cove, Nilai, and twentyfive.7, Kota Kemuning. The Group is currently reviewing their FY20 property sales target of RM4 billion, amidst the soft property market.

It is hoped that the definitive agreements in regard to the disposal of their toll roads to the government for RM2.36 billion will be finalised by January 2020, and completed latest by May 2020. The deal now rests upon the government’s policy framework pertaining to toll road ownership in Malaysia, where the government is trying to make the decision if they should own toll roads.

Working on the basis that the Penang state government has secured federal government guarantee to issue “Light Rail Transit (LRT) bonds,” Gamuda reiterates for physical work to begin by 2H of 2020. They have also repeated that they are providing assistance to the Penang state government to secure funding for the Penang South Reclamation (PSR) project.

Moving on, Gamuda has through a 45% owned entity won an open tender from the Land Transport Authority of Singapore for the construction of a bus depot. The project is worth approximately RM794.89 million. The profit margins for this project is however expected to be marginal, as the public works industry in Singapore is highly competitive.

The year 2020 may be challenging for Gamuda given Malaysia’s elevated national debt, which may result in a delay of the rolling out of major projects. The ones that would affect the Group the most would be the Penang Transport Master Plan (PTMP) project, in the event that the project fails to take off, or if the Group is asked to take a reduced role.

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(27 December 2019)