Gamuda 2QFY09 in line - Looking to bridge the gap (CIMB)

Gamuda’s annualised 1HFY7/09 core net profit came in around 77% of our full-year forecast and consensus. We consider it to be broadly in line as the subsequent quarters should be better. Despite a 23.3% yoy rise in revenue, core net earnings slumped 42% because of lower EBIT margins. No dividends were declared, which was no surprise. A positive surprise during the 2Q briefing was the change in the payment structure for the double-tracking project as it reduces potential payment delays from the government. Gamuda stands to benefit from pump-priming in 2009.

We retain our earnings forecasts, TRADING BUY call and target price of RM2.95, based on a 40% discount to RNAV. Potential re-rating factors are (i) its lagging share price performance relative to our other top pick in the construction sector, IJM Corp which has risen by more than 30% this year , and (ii) potential new contracts.