Investment Highlights

• We maintain HOLD on Gamuda with a higher SOP-based fair value of RM4.10/share. This is to account for the increase in cash reserves following the RM2.4bil disposal of the expressways. Our fair value is now also ex for the special dividend of 38 sen/share. The ex-date of the special dividend was 13 Dec.

• Our FV reflects a 3% premium for its 4-star ESG rating and it implies a FY24F PE of 14x, near its 5-year average of 12x.

• Gamuda’s 1QFY23 core net profit (CNP) of RM145mil (excluding gain from disposal of expressways of RM978mil) was within expectations, accounting for 20% each of our FY23F forecast and consensus estimates. As we expect progress billings for major projects in Australia accelerate, we maintain our earnings forecasts.

• Gamuda declared a DPS of 6 sen/share in 1QFY23. Together with the special dividend of 38 sen/share in relation to the sale of concessionaire, total dividend YTD is 44sen/share. We expect Gamuda to declare another DPS of 6 sen/share in 3QFY23.

• Gamuda’s CNP grew 26% YoY to RM145mil in 1QFY23 due to strong contribution from the property development segment. Its PBT expanded 2.6x to RM73mil in tandem with the 2.3x growth in revenue, underpinned by strong sales from Vietnamese property projects.

• Gamuda’s outstanding order book rose 6% QoQ to RM14.8bil in 1QFY23, representing a healthy 4x FY23F of construction revenue. Major contracts secured so far include the RM1.3bil TaoYuan Underground Railway project in Taiwan.

• Although Gamuda was unable to secure the Australian North-East Link project, we maintain our replenishment assumption of RM16bil for FY23F. Potential jobs consist of the Suburban Rail Loop East and renewable energy infrastructure projects in Australia. In Malaysia, potential contracts include CMC303 of Mass Rapid Transit 3, reclamation of Penang South Island (PSI), and flood mitigation projects. The Environmental Impact Assessment (EIA) for the PSI project may be approved as early as Jan 2023.

• Gamuda’s FY23F internal target for property sales is RM4.5bil. This will be driven by quick turnaround projects (QTPs). In 1QFY23, the group recorded presales of RM480mil, 43% lower than previous quarter as their top selling projects, OLA Singapore and Celadon City Vietnam have almost been fully sold.

• Gamuda intends to aggressively build QTPs, which will complement core townships. The group targets additional 5 QTPs in the next 2 years to grow the QTP portfolio to 11. These will be located in UK, Vietnam, Australia, and Singapore. While requiring less capital, QTPs deliver superior returns over a shorter investment horizon. In spite of this, we have penned a lower assumption of RM4bil for FY23F in light of the weak consumer sentiment resulting from macroeconomic headwinds.

• We believe the vacuum left by the expressway concessions will be filled by the QTPs and strong construction order book, which has tripled to RM14.8bil as at Oct 2022 from RM4.5bil in Jul 2021. Gamuda targets to secure RM25bil projects from FY22 to FY23F. The group also intends to set up a new recurring income division comprising green infrastructure. Gamuda has earmarked RM2bil investments for domestic and international renewable energy (RE) in the next 5 years. The internally funded investment could entail several types of RE such as hydro projects in Australia.

• With the goal of growing its RE asset portfolio to over 800MW in the next few years, Gamuda recently announced the acquisition of a 30% stake in ERS Energy. ERS is a solar photovoltaics (PV) engineering, procurement, construction and commissioning (EPCC) and systems integrations company. ERS Energy is also Gamuda’s JV Partner in NEDA Pekan to develop a 39MW (29.99 MWac) solar power plant under the New Enhanced Dispatch Arrangement (NEDA) framework.

• Challenges faced by Gamuda include (i) eroding profit margins from rising building material costs and labour shortages; and (ii) delays/cost revisions of mega projects.

• We view Gamuda as fairly valued as it is currently trading at a fair 12.4x FY24F PE, near its 5-year historical average of 12x.

Source: AmInvest Research - 19 Dec 2022