CIMB Equities Research expects a weaker second half for Gamuda Bhd due to a declining order book and weak property sales.

The research house said on Friday lacklustre property sales performance in 1H16 could mean sustained weak property earnings going into FY17.

However, it expects this weakest link to be mitigated by construction and the resilient concession recurring earnings.

“Management flagged a 20% to 30% downside risk to the RM1.3bil property sales target for FY16. Domestic sales could still be sluggish in 2HFY16 (Feb-July), in line with the overall outlook of the domestic property market. Unbilled sales as at end-1H16 stood at RM1bil,” it said.

CIMB Research said Gamuda’s annualised 1HFY7/16 core net profit was 5% above its full-year forecast and 2% above consensus.

“The sustained low blended construction pretax margin of 6.9% in 1H16 was expected given the near completion of MRT 1. The weakest link was 1H16 property sales (RM385mil), which fell 28% on-year,” it said.

CIMB Research said blended construction pretax margin of 6.9% in 1H16 has more room for upside going by the peak 10%-11% MRT margins in FY15.

Margin recovery could come from the pending award of MRT 2’s underground works.

“We still expect Gamuda to be among the front runners for the next underground works package. Our earlier channel checks suggested a potential revised value of RM15bil; the single largest scope for MRT 2,” it said.

Gamuda’s 50% share in the PDP JV implies a potential new order win of over RM7bn.

It pointed out positive newsflow to kick-off MRT 2’s awards phase was in the works. Three priority largescale packages worth a combined RM17bil-RM8bil are due to be awarded, likely in the short term, including the underground scope.

“Other new bids are: Pan Borneo, LRT 3, and Gemas-Johor Baru rail double track (subcontract works).

Our estimate of RM9bil of total jobs in tender backed by a likely high success rate is unchanged,” it said.

“Gamuda remains our top pick among the big caps given its biggest exposure to MRT 2 and the largest proxy to rail jobs,” it added.

CIMB Research pointed out the potential revival of construction plays in months ahead could sustain the recovery in Gamuda’s foreign shareholding (21% as at March 2016)

“Contract wins are the stock’s key potential catalysts in months ahead. We raise our target price (to RM5.71 from RM5.55), based on 10% discount to RNAV, as we update for balance sheet items (unchanged 10% RNAV discount). Reiterate Add,” it said.