PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te /B rief in g No te

11 March 2010
MARKET DATELINE

Gamuda Share Price

Fair Value
:
:
RM2.79
RM2.12
Acquiring A 60% Stake In A Property Project In Recom : Underperform
(Maintained)
HCMC, Vietnam, for US$82.8m

Table 1 : Investment Statistics (GAMUDA; Code: 5398) Bloomberg: GAM MK

Net Net
FYE Turnover Profit# EPS# Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Jul (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 2,727.3 193.7 9.7 (40.7) 27.6 - 8.1 1.7 6.2 0.1 3.0
2010f 2,958.5 292.3 14.4 49.2 18.5 16.0 (8.6) 1.6 8.5 0.2 4.5
2011f 3,370.5 327.2 16.1 11.9 16.5 20.0 (9.5) 1.4 8.7 0.4 4.5
2012f 3,194.9 332.0 16.4 1.5 16.3 23.0 nm 1.3 8.1 0.5 4.5
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC #Ex-EI * Consensus Based On IBES Estimates

♦ All-in wager on Vietnam’s property sector. Gamuda is acquiring a Issued Capital (m shares) 2,017.5
Market Cap(RMm) 5,628.8
60% stake in Tan Thang Company (Tan Thang) from Sai Gon Thuong Tin
Daily Trading Vol (m shs) 7.3
Real Estate Joint Stock Company (Sacomreal) for US$82.8m (RM273m).
52wk Price Range (RM) 1.85-3.38
Tan Thong holds the development rights for a piece of land measuring 204
Major Shareholders: (%)
acres at Son Ky Ward, Tan Phu District, HCMC, Vietnam. Tan Thong has EPF 11.0
secured the key approvals from the authority to develop the land into a Raja Dato’ Seri Eleena 7.4
township with a total GDV of RM6bn over seven years. Platinum Investment 6.2
♦ Fair price. Having adjusted for an efficiency (sellable ratio) of 48%, the
FYE Jul FY10 FY11 FY12
effective land cost is US$350 psm that is at a premium to the going rate of EPS Revision (%) - - -
US$250-300 psm in the area. However, the premium is justifiable by Var to Cons (%) -4 -15 -29
virtue of a higher-than-average plot ratio the land will command.
♦ A better deal than Yenso Park. We feel that Gamuda is getting itself a PE Band Chart

much better deal as compared with Yenso Park as Gamuda only signed on PER = 30x
PER = 25x
the dotted line yesterday (about a year since it first started working on the PER = 20x
deal), after key approvals for the project from the authority were secured. PER = 15x

Also, the deal was structured in such a way that Sacomreal, the vendor of
the 60% stake in the venture (who remains a 30% minority shareholder),
will plough back US$66.2m (equivalent to 80% of Gamuda’s consideration
for the 60% stake) as “shareholders loan” to the venture for working
capital.
Relative Performance To FBM KLCI
♦ Positive, but not re-rating catalyst. We are positive on the latest
development but we do not believe it is the re-rating catalyst the market is
looking for. We believe investors still want to first see the “first oil” from
Gamuda’s investment in Vietnam, that has so far still been elusive. Gamuda
♦ Sector’s best case priced in. On the big picture, while a rosy picture for
FBM KLCI
the construction sector has been priced in based on the current rich
valuations, it is still far from being a reality, especially so after a slew of
negative developments including reduced gross development expenditure
in 2010, Dong’s devaluation, the Dubai credit crisis and the seemingly
declining dominance of the big boys in large-scale projects. We believe
the market has under-appreciated two other key risks as well, namely: (1)
Possible delays in project implementation; and (2) Sub-par margins due to
stiff competition.
♦ Maintain Underperform. Rich valuations have more than priced in
Gamuda’s earnings buffer from its RM7.5bn outstanding construction Joshua CY Ng
orderbook. Indicative fair value is RM2.12 based on 14x CY10 EPS of (603) 92802151
joshuang@rhb.com.my
15.1sen, in line with our benchmark 1-year forward target PER for the
construction sector of 10-14x.

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 11 March 2010

Acquiring A 60% Stake In A Property Project In HCMC, Vietnam, for US$82.8m

♦ All-in wager on Vietnam’s property sector. Gamuda is acquiring a 60% stake in Tan Thang Company (Tan
Thang) from Sai Gon Thuong Tin Real Estate Joint Stock Company (Sacomreal) for US$82.8m (RM273m). Tan
Thong holds the development rights for a piece of land measuring 204 acres at Son Ky Ward, Tan Phu District,
HCMC, Vietnam, 9km from HCMC’s CBD and 3km from HCMC’s international airport. Tan Thong has secured the
key approvals from the authority to develop the land into a township comprising 7,000 units of mid- and high-
end apartments, a sports complex and an education centre with a total GDV of RM6bn over seven years.
Sacomreal will still hold a 30% stake in Tan Thang after the disposal with the balance 10% being held by an
individual. Sacomreal is engaged in the provision of real estate services and development of high-end
apartments. Gamuda regards it as a “reputable” local partner. It is a sister company to Sacombank, the largest
private commercial bank listed in Vietnam with 200 branches nationwide and a market capitalisation of US$1bn.
Gamuda was approached by Sacomreal about a year ago to become its JV partner for this project as Sacomreal
was lack of experience in township development and was impressed by Gamuda’s first property project in
Vietnam, i.e. Yenso Park in Hanoi.

♦ Fair price. At US$82.8m for a 60% stake, Tan Thang in its entirety with 204 acres of development land is
effectively valued at US$138m, translating to US$168 psm in terms of land cost. Having adjusted for an
efficiency (sellable ratio) of 48%, the effective land cost is US$350 psm that is at a premium to the going rate of
US$250-300 psm in the area. However, the premium is justifiable by virtue of a higher-than-average plot ratio
the land will command. The US$82.8m (RM273m) outlay will increase Gamuda’s net debt and gearing of
RM278.2m and 0.09x as at 31 Oct 09 to RM551.2m and 0.17x that are still highly manageable.

♦ A better deal than Yenso Park. Having amassed massive experience from Yenso Park, we feel that Gamuda
is getting itself a much better deal this time around. Firstly, Gamuda only signed on the dotted line yesterday
(about a year since it first started working on the deal), after key approvals for the project from the authority
were secured (so that the gestation period is much reduced). Secondly, the deal was structured in such a way
that Sacomreal, the vendor of the 60% stake in the venture (who remains a 30% minority shareholder), will
plough back US$66.2m (equivalent to 80% of Gamuda’s consideration for the 60% stake) as “shareholders loan”
to the venture for working capital, pending project financing to be raised at the venture’s level. Gamuda will
also chip in US$10m.

♦ Dong devaluation a calculated risk. Gamuda is going into this venture with the full knowledge that Dong
may be further devalued. Gamuda believes the mitigating factors include: (1) The Tan Thang project is a long-
term project spanning over seven years or more that means at some point Dong may even start to appreciate
against the US$ on improved economic fundamentals; (2) The products are priced in US$, and to a certain
extent, households’ wealth in Vietnam is denominated in US$ (via the holding of US$, US$-denominated assets
or even gold); and (3) To the buyers, properties are a good hedge against Dong’s devaluation and inflation.

♦ Gamuda = Vietnam? Gamuda admitted that with a second massive property project in Vietnam, “the fortunes
of Vietnam and Gamuda will become intertwined”. Gamuda guided US$170m and US$100m sales from Yenso
Park and the Tan Thang project in FY07/11 (Soft and official maiden launches in May and Aug 2010 for Yenso
Park, and Aug and Sep/Oct 2010 for the Tan Thang project). Gamuda also guided that when both the projects
are in full swing three years from now, they should contribute to RM1.8bn turnover and RM300m PBT combined.
With the second property project in Vietnam, Gamuda’s exposure to Vietnam will hit about US$492.8m
(RM1.63bn) (see Table 2).

Table 2: Gamuda’s Exposure To Vietnam

Yenso Park, Hanoi Tan Thang, HCMC Total
Area (acres) 1,235 204 1,439
GDV (RMm) 10,000 6,000 16,000
Project life (years) 10 7 -
Capital outlay (US$m) 400* 92.8^ 492.8
Capital outlay (RMm) 1,320 306 1,626
Expected soft launch May 2010 Aug 2010 -
Expected official launch Aug 2010 Sep/Oct 2010 -
Expect sales in FY07/11 (US$m) 170 100 270
*Gamuda thus far only invested US$100m
^US$82.8m for a 60% stake in operating company + US$10m shareholders loan
Source: Company, RHBRI

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 11 March 2010

♦ Positive, but not re-rating catalyst. We are positive on the latest development but we do not believe it is the
re-rating catalyst the market is looking for. We believe investors still want to first see the “first oil” from
Gamuda’s investment in Vietnam, that has so far still been elusive.

♦ Forecasts. We continue not to reflect in our numbers any earnings contribution from both the property projects
in Vietnam as their maiden launches may still subject to delays due to various issues. In any case, contributions
are likely to be insignificant during our forecast period based on the “completion” method under the new
accounting standards.

♦ Risks to our view. These include: (1) New contracts secured coming in above our target of RM1bn per annum
in FY07/10-11; and (2) Stronger-than-expected recovery in construction margins.

♦ Sector’s best case priced in. On the big picture, while a rosy picture for the construction sector has been
priced in based on the current rich valuations, it is still far from being a reality, especially so after a slew of
negative developments including reduced gross development expenditure in 2010, Dong’s devaluation, the
Dubai credit crisis and the seemingly declining dominance of the big boys in large-scale projects. We believe the
market has under-appreciated two other key risks as well, namely: (1) Possible delays in project
implementation; and (2) Sub-par margins due to stiff competition.

♦ Maintain Underperform. Rich valuations have more than priced in Gamuda’s earnings buffer from its RM7.5bn
outstanding construction orderbook (see Table 3). Indicative fair value is RM2.12 based on 14x CY10 EPS of
15.1sen, in line with our benchmark 1-year forward target PER for the construction sector of 10-14x.

Table 3: Outstanding Construction Orderbook

Project Balance Of Works (RMbn)
Ipoh – Padang Besar double-tracking project 4.1
Nam Thuen 1 hydroelectric project 1.8
Yenso Park Infrastructure works 1.0
Outstanding works in the Gulf states 0.6
Total 7.5
Source: Company

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Jul (RMm) FY09a FY10F FY11F FY12F FYE Jul FY10F FY11F FY12F

Turnover 2,727.3 2,958.5 3,370.5 3,194.9 Construction EBIT margin (%) 5.0 7.2 8.8
Turnover growth (%) 13.5 8.5 13.9 -5.2 New orderbook secured (RMbn) 1.0 1.0 2.0

EBITDA 197.9 277.3 363.6 397.1

EBITDA margin (%) 7.3 9.4 10.8 12.4

Depreciation -14.1 -14.8 -15.6 -16.4

Net Interest -44.8 -37.9 -75.8 -100.8
Associates 143.2 176.2 176.2 176.2
EI 0.0 0.0 0.0 0.0

Pretax Profit 282.2 400.8 448.4 456.1

Tax -78.0 -100.2 -112.1 -114.0
PAT 204.2 300.6 336.3 342.1
Minorities -10.5 -8.3 -9.2 -10.1
Net Profit 193.7 292.3 327.2 332.0
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
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RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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