Gamuda’s earnings to take a hit

PETALING JAYA: Gamuda Bhd’s earnings growth will be affected by lower domestic property sales and tougher competition for jobs in the construction sector, both locally and abroad.

MIMB Investment Bank in a report said escalating prices of raw materials, such as steel, would affect the operating cost of Gamuda and grind down its profit margin.

“Gamuda may not be able to reload its order book as well to maintain its construction earnings growth due to the grim outlook for the sector currently,” the report said.

Gamuda registered positive growth as net profit in the third quarter ended April 30 increased to RM76.7mil on revenue of RM562.3mil compared with RM45mil and RM297.3mil respectively in the previous corresponding period.

The company attributed the better performance to higher contributions from all divisions, namely construction, property and infrastructure concessions.

Going forward, MIMB noted that to sustain its earnings, Gamuda needed to have a strong balance sheet to hedge or even stock up raw materials.

On a positive note, Gamuda’s electrified double-tracking project from Ipoh to Padang Besar was running on schedule, it said, adding that 75% of its contract works and services had been awarded to various subcontractors and suppliers.

“However, Gamuda is still finalising the concession and power purchase agreement for its hydropower dam project in Laos,” MIMB said.

On the Vietnamese front, MIMB noted that Gamuda was confident of the long-term growth of its economy and the long-term viability of its projects there remained unaffected despite the current inflationary pressures and its currency crisis.

The company has a total land bank of 1,400 acres in Vietnam with a gross development value of RM12bil.

Gamuda’s share price had plunged more than 45% since March on concerns relating to Vietnam’s unstable economy. It closed at RM2.43 yesterday from a high of RM3.54 in early March.

Aseambankers in its report said Gamuda was significantly undervalued since the plunge, and maintained its “buy” recommendation on the counter with a target price of RM2.90.

Meanwhile, MIMB said the counter was due for a price correction since its sharp drop and maintained its “buy” call with a target price of RM3.04.

By The Star (by Laalitha Hunt)