Investment Highlights

• We maintain HOLD on Gamuda with a higher SOP-based fair value (FV) of RM3.42/share from RM3.28/share previously The higher FV implies an FY23F PE of 11.3x. There is no adjustment for ESG based on our 3-star rating. We believe the upside has already been priced as reflected by the 16% rise in its share price since January.

• We raise our FY22F and FY23–24F forecasts by 6% and 23%–30% respectively to reflect contributions from the newly secured projects in Australia (Sydney Metro West) and Singapore (Defu Station). The projects are estimated to account for 21% of Gamuda's FY23F net profit.

• Gamuda recorded a better-than-expected core profit of RM330mil in 2QFY22, making up 58% and 55% of our and consensus estimates. This was due to the strong showing in the construction and property segments.

• Gamuda’s 1HFY22 earnings improved by 41% against 1HFY21 whereas its 2QFY22 earnings rose by 16% against 1QFY22, as construction and property segments recovered post- lockdowns in Malaysia and Vietnam.

• During the 2QFY22 result’s briefing, Gamuda said that it planned to pay a second interim dividend in 2HFY22. Hence, we have forecast a higher DPS of 12 sen vs. 6 sen originally.

• Significant breakthrough in Australia. As the head contractor in a consortium with Laing O’Rourke, Gamuda was awarded a tunnelling and civil works project worth A$2.16bil (RM6.5bil) – the single largest project ever overseas – in the Sydney Metro West, Western Tunnelling project. The project is expected to commence as early as April 2022 and is envisaged to last until 2026. The project will be entirely government funded and paid progressively.

• First tunnelling project in Singapore. Gamuda, via a 60:40 JV with Wai Fong Construction, clinched its first tunnelling project in Singapore worth S$467mil or RM1.45bill (Gamuda’s portion is S$280mil or RM870mil)

• Doubling of its construction order book. Gamuda’s target is to double its existing order book of RM10.4bil (including its Australia and Singapore projects) by the end of FY23F, with an equal split between the domestic and overseas order books. Potential awards include the underground portion for the MRT3, flood mitigation project (SMART2), and additional work packages from the expansion of the Pan Borneo Highway in Malaysia and the Coffs Harbour bypass in Australia.

• Strong contender for the MRT3 underground portion. Recently, the Cabinet approved the MRT3 project, with 31 stations comprising 40km of elevated tracks and 11km of underground tunnels. The MRT3 construction works will be opened for tender in May 2022, and the jobs are expected to be awarded in 4Q2022. The estimated construction cost of RM31bil will be broken down into five main packages – two turnkey contractors for elevated works, one turnkey contractor for underground works, one integrated rail systems, and one project management consultant. We are optimistic on Gamuda securing the underground package due to its previous track record for the MRT1 and MRT2.

• In spite of the potential award of the MRT3 project, we are cautious on the construction sector due to challenges such as high operating cost arising from building materials costs and supply chain disruptions if the Covid-19 pandemic lingers on.

Source: AmInvest Research - 24 Mar 2022