Investment Highlights

• We maintain BUY on Gamuda with an unchanged SOPbased fair value (FV) of RM4.73/share. Our FV reflects a 3% premium for its 4-star ESG rating and implies a FY24F PE of 14x, 1 standard deviation above the group’s 5-year PE average of 12x.

• Gamuda’s 1HFY23 core net profit (CNP) of RM340mil was within expectations, accounting for 46% of our FY23F earnings and 48% of consensus.

• Gamuda’s CNP grew 30% YoY to RM340mil in 1HFY23 due to strong contribution from the property development segment. Property PBT expanded by 61% YoY to RM151mil in 1HFY23 in tandem with a 54% growth in revenue, underpinned by strong sales from Vietnamese property projects.

• Loss of earnings due to the sale of the expressway concessions have been covered by overseas construction and property projects i.e. Sydney Metro West in Australia and property sales in Vietnam. Gamuda achieved a PBT of RM415mil in 1HFY23, marginally below the RM419mil recorded in 1HFY22, which included contribution from the expressways.

• Gamuda’s outstanding construction order book grew 38% QoQ to RM20.5bil in Jan 2023, representing 5x FY23F construction revenue. A major project secured during the quarter was the RM1.2bil M1 Motorway project in Australia.

• Gamuda’s outstanding order book also includes jobs of AUD2bil (or RM6bil) from the acquisition of the Australian transport project business (Downer Transport Project). The acquisition is expected to complete in mid-2023.

• Although Gamuda has only secured RM2.4bil worth of new jobs in FY23F, or 15% of our expected replenishment of RM16bil for the year, we make no changes to our replenishment assumption for now.

• We believe that Gamuda has a good chance of securing a portion of the Suburban Rail Loop (SRL) East project in Australia. Domestically, Gamuda is in the running for various projects such as the 90MW hydropower plant, MRT3 and Penang South Island project.

• Gamuda, via the MMC-Gamuda joint venture has submitted a bid for MRT3’s CMC303 amounting to RM13.3bil. Its bid was the lowest amongst its peers. We expect the tender awards for the main packages of MRT3 to take place in 2H2023, after the completion of public inspection of MRT3 railway scheme and study of the proposed alignment and suitability of realignment. Gamuda is also eyeing the systems package, which is estimated to be between RM5bil and RM7bil. Meanwhile, we think the Environmental Impact Assessment for the Penang South Island project may be approved in 3Q2023.

• Gamuda’s internal target for FY23F property sales is RM4.5bil. Presales was RM560mil (+17% QoQ) in 2QFY23, bringing presales to RM1.0bil in total in 1HFY23. Domestic projects such Gamuda Cove, Gamuda Gardens, Jade Hills, and twentyfive.7 made up the bulk of total presales in 1HFY23. Looking ahead, Gamuda expects its presales to grow significantly in 2HFY23, driven by new projects in Vietnam such as Artisan Park and Elysian.

• Challenges include (i) eroding margins from higher-than-expected construction costs and labour shortages; and (ii) shelving of mega projects.

• Gamuda is currently trading at an attractive 12.6x FY23F PE, below its 5-year peak of 15x.

Source: AmInvest Research - 24 Mar 2023