Gamuda Bhd has been a favourite among analysts as a key proxy for the booming Malaysian construction sector, considering the group’s leading role in several of the mega railway projects under the 11th Malaysia Plan (11MP).
The group was appointed the project delivery partner (PDP) for Mass Rapid Transit (MRT) Line 1 and Line 2 and also as the PDP for the Penang Transport Master Plan.
Its consistent dominant roles in these projects have translated well in terms of earnings and return on equity (ROE), putting the counter as the top pick of many for the construction industry.
Gamuda’s ROE slipped to 9.48% in FY2016 as the group approached the tail end of its works for MRT Line 1, which translated into an 8% year-on-year decline in net profit to RM626.13 million. Revenue for the year fell 11% to RM2.12 billion. The dip in financial performance for the year was also partly attributed to lower contribution from its property division, amid the subdued Malaysian property market.
Despite the slip in FY2016 returns, Gamuda outshone its peers with an average ROE of 11.64% over a three-year period, helped by higher returns of 13.9% and 11.55% in FY2014 and FY2016 respectively. Adjusted and graduated ROE over three years of 13.7% puts it above peers.
Works for MRT Line 1 have already been completed, with the line commencing full operations in mid-July, while over 90% of the awards for MRT Line 2 have been announced.
Considering its experience in underground tunnelling works, the group is expected to secure more works from the upcoming railway projects, including the Light Rail Transit (LRT) Line 3, East Coast Rail Link, Kuala Lumpur-Singapore high- speed rail and MRT Line 3, which is anticipated to be rolled out in early 2019.
Gamuda guided that it expects to secure new projects and boost its order book to a targeted RM10 billion in 2017, from its previous target of up to RM4 billion.
With its hefty order book — estimated at RM8.2 billion as at end-June — and expected job wins going forward, the prospects remain bright for the construction group.
The optimism is also supported by the performance of its property division that is expected to be better this year as the group is on track to beat its property sales target of RM2.12 billion in FY2017.
For the first nine months of FY2017 (9MFY2017), Gamuda registered RM1.4 billion in sales, supported by higher sales in overseas markets, which accounted for 55% of total sales.
It said Celadon City in Ho Chi Minh City and Gamuda City in Hanoi were the biggest contributors to its overseas sales, amid strong property demand and an improved economic outlook in Vietnam.
Meanwhile, its high-rise developments, namely GEM Residences in Singapore and 661 Chapel Street in Australia, also registered encouraging sales.
The group is also expecting a maiden contribution from its RM6.9 billion Gamuda Gardens in Rawang, and is confident of meeting its sales target of RM3 billion in FY2018.
Meanwhile, uncertainty still lingers over the sale of its 40% stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH), as the Selangor government and the federal government are finalising certain matters before the takeover can be completed.
In March, Selangor Menteri Besar Datuk Seri Mohamed Azmin Ali announced that the deadline to finalise the takeover had been extended for six months from April 6 to Oct 5, 2017, implying that the water impasse will not be resolved so soon.
He explained that the delay was due to the federal government waiting for its international independent valuer to finalise the valuation of SPLASH’s assets.
It was reported that SPLASH’s assets were valued at between RM2.8 billion and RM3.2 billion by RHB Investment Bank Bhd in 2015, while Deloitte was reported to have valued them at RM3 billion.