Gamuda likely in for choppy times

PETALING JAYA: Construction and engineering group Gamuda Bhd may be in for some choppy times, given the company's exposure to the property sector in Vietnam, which is facing soaring inflation, a plunging stock market and a depreciating currency.

The group, through Gamuda Land Sdn Bhd, is launching the 808-acre Yen So Park, with a gross development value (GDV) of US$1bil, this year.

Its share price has dropped to the lowest in two months on concerns the company might face higher borrowing costs if property sales were delayed due to a tougher environment.

Similarly, the share price of two other developers exposed to Vietnam's property sector, Berjaya Land Bhd and SP Setia Bhd, have also come under selling pressure. Gamuda shares tumbled 53 sen to RM2.45, SP Setia fell 24 sen to RM3.96 while Berjaya Land lost 20 sen to RM5.10.

According to Vietnam's General Statistics Office, consumer prices jumped 25.2% in May from a year ago as food costs jumped 42.4% on a 67.8% rise in the price of grains, including rice.

The price of housing and construction materials rose 22.9% during the period.

Citigroup said in a report yesterday that it had turned more cautious about Gamuda's property venture in Vietnam due to the country's sharply deteriorating macro picture.

It has a target price of RM2.57 per share after excluding the contribution from Gamuda's Vietnam property sales over the next two years. It cut its earnings estimates for the company by 27.3% to RM432mil for 2009 and 36.4% to RM537mil for 2010.

Analyst Choong Wai Kee expects more headwinds ahead for the company's Vietnam projects, which will account for 58% and 82% of its property revenue in the next two financial years. Overall, property is expected to account for 39% and 45% of group revenue over the period.

“The delays in property sales in Vietnam could also mean that Gamuda would have to rely entirely on borrowings to fund its initial infrastructure outlay,” he said, adding that the earnings and target price had yet to factor in any potential delays in the double-tracking project.

Earlier this year, Gamuda and MMC Corp Bhd were jointly awarded the RM14.5bil electrified double-tracking rail project linking Ipoh to Padang Besar.

Choong said the company might have to review its generous dividend policy due to the delay in the sale of its stake in 40%-owned associate company Syarikat Pengeluar Air Selangor Sdn Bhd. The company is a privatised water supplier with a capacity of two billion litres a day.

Meanwhile, Aseambankers Malaysia Bhd analyst Wong Chew Hann told StarBiz that investors have over-reacted to Gamuda's overseas exposure.

“It's now well below the revised net asset value, even after taking out the overseas property earnings,” she noted, adding that foreign shareholdings had yet to be sold.

Wong said the fair value for the company, considering only the infrastructure assets and local property projects, should be RM3.

By The Star - StarBiz - (by Fintan Ng)