By Khairul Khalid
Gamuda Bhd’s expected earnings drop for its financial year 2016 (FY16) will be offset by expected toll hikes next year, according to TA Securities.
“The expected decline in FY16 earnings is cushioned by better contribution from its toll highways as there are scheduled toll hikes for LDP (Damansara Puchong Highway) and Kesas (Shah Alam Expressway) in 2016,” said TA Securities in a report.
Yesterday, Gamuda posted a nett profit of RM161.2 million for the first quarter of financial year 2016 (1Q16), down 13.2% year-on-year. Revenue for the quarter also fell 9.9% year-on-year to RM512.7 million
The company attributed the lower profits to the completion of the electrified double tracking railway project in November 2014 and the sluggish property market in the country.
Nevertheless, TA Securities expects Gamuda’s earnings to rebound in 2017.
“As the construction works for KVMRT (Klang Valley Mass Rapid Transit) Line 1 is tapering off and property sales for FY15 has slowed down, we expect to see earnings contraction in FY16 before rebounding in FY17 when works for KVMRT line 2 pick up momentum,” said TA Securities.
Another silver lining for Gamuda is its overseas property business, especially in the Vietnamese market.
“The domestic property market is expected to remain sluggish but stable. However, Vietnam’s property outlook appears promising. Gamuda is hopeful of maintaining the sales achieved last financial year at least, if not better. Vietnam property sales are projected to contribute about 40% to the group’s total property sales in FY16,” said TA Securities.
Besides its engineering, construction and property businesses, Gamuda is also one of the biggest highway concessionaires in the country. Other than LDP and Kesas, it also operates the SPRINT highway.
It also has a forty year concession to operate and maintain the Stormwater Management and Road Tunnel (SMART). Gamuda also owns a stake in Splash, the last remaining private water concessionaire in Selangor. It is reportedly in negotiations with the Selangor government to take over the water business in the state’s protracted restructuring of the water industry.
TA Securities is maintaining its “hold” recommendation on Gamuda with a target price of RM4.74.
At 12pm today, Gamuda shares were trading at RM4.39, down 1 sen.
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