HLG: 27 March 2008 Gamuda - Political shifts cause uncertainty

Gamuda Berhad HOLD



Price target RM3.50



Share price at 26 Mar RM3.14



Investment summary


H108 results were in-line with consensus and forecast. Still, we remain lukewarm on Gamuda: (1) though the share price fell -45% in Mar08, multiples remain comparable to construction peers; (2) domestic job-flow (especially for big-ticket construction projects) could slow on on-going political uncertainty/changeovers; (3) FY09E net DY of 6% provides a fundamental floor to the share price, though this is still at risk from high foreign shareholding of 51%. We are negative on the Malaysian construction sector: (1) recent sharp political changes could lead to a slow-down in government job-flow; (2) construction valuations remain expensive relative to the broader market, despite a peakish macro environment; (3) in most cases, overseas jobs cannot compensate for local govt jobs in terms of profitability.



Do not chase the stock

Though the share price has halved, we remain bearish: (1) Gamuda has out-grown Malaysia’s govt-driven construction mkt in terms of scale/margins, and the success of overseas diversification is unclear; (2) domestic construction job-flow could slow due to political uncertainty.