Investment Highlights

• We maintain HOLD on Gamuda with a higher SOP-based fair value (FV) of RM4.32/share (vs RM3.42/share previously) by rolling forward our valuation target PE of 13x to FY24F for the construction segment.

• Our FV reflects a 3% premium for its 4-star ESG rating. We think that most of the upside has already been priced in as reflected by the 32% rise in its share price since Dec 2021 with our earnings forecasts mostly unchanged.

• Pursuant to the sale of concessionaires, Gamuda has earmarked RM1bil special dividend for its shareholders. This translates to 38 sen/share or a compelling 10% dividend yield at current share price.

• We expect that the special dividend will be paid by Jan 2023. The remaining funds (RM1.4bil) will be channelled to its core businesses. Gamuda may also set up a new recurring income division involved in green infrastructure.

• Gamuda has grown its construction order book to RM14bil as at Jul 2022 with a target to grow to RM25bil by end of FY23F.

• We estimate that Gamuda will replenish its order book by RM16bil in FY23F and RM12bil each in FY24F-25F, predominantly in Australia, such as the Suburban Rail Loop East project and North East Link project. Meanwhile, potential local jobs include CMC303 of MRT3, reclamation of Penang South Island and flood mitigation projects.

• Gamuda is also targeting property presales of RM4.5bil in FY23F, driven mainly by quick turnaround projects in Ho Chi Minh City, Melbourne and London. However, we have penned a lower assumption of RM4bil for FY23F due to weak sentiments resulting from macroeconomic headwinds.

• We think that Gamuda is fairly valued, trading at FY23F PE of 13.4x, near its 5-year average of 12.9x.

Source: AmInvest Research - 27 Oct 2022