Investment Highlights

• We maintain BUY on Gamuda with a higher SOP-based fair value (FV) of RM5.17/share (previously RM4.73/share). Our FV reflects a 3% premium for its 4- star ESG rating and implies a FY24F PE of 16x, 1 standard deviation above the group’s 5-year PE average of 14x.

• Gamuda’s FY23 core net profit (CNP) of RM815mil was above expectations, coming in 10% above our forecast but in line with consensus. Despite the absence of 2 key profit contributors (MRT2 project and toll highways), the higher-than-expected construction revenue (+2.4x YoY) was contributed from overseas jobs, mainly in Australia. Hence, we raise FY24F-26F CNP between 29%-34% to account for doubling of FY24F revenue, underpinned by Gamuda’s substantive order book and unbilled property sale in hand.

• Gamuda’s revenue rose 68% YoY FY23 due to strong contribution from both construction and property development segment. FY23 construction PBT increased by 35% YoY to RM619mil mainly due to 4x increase in overseas construction works revenue in tandem with significant pick up in work of progress in Australia and Taiwan.

• On QoQ basis, 4QFY23 CNP increased by 13% to RM252mil due to stronger earnings contribution from overseas construction and property segments. The property segment PBT increased by 33% QoQ to RM170mil, underpinned by stronger presales in Vietnam amid strong demand and higher margin.

• Gamuda’s outstanding construction order book in July 2023 stood at RM20.6bil (-4% QoQ), representing 1.7x FY24F construction revenue. Major projects secured during the year were the RM1.2bil M1 Motorway project in Australia and RM3.7bil Silicon Island in Malaysia.

• The outstanding order book excludes the RM1.2bil ongoing contract novation at DT Infrastructure (DTI). Including the order book at DTI, the effective order book stands at RM21.8bil (+1.4% QoQ), which is 82% higher than RM12bil in FY22. The acquisition of DTI in early 2023 would provide Gamuda a reliable joint venture partner to secure new construction jobs in Australia.

• Gamuda has set the target of RM25bil new order book target to be secured over the next 24 months, partially coming from 6 large prospective projects including Penang LRT, MRT 3, Pan Borneo Highway and MRT expansion project in Taiwan. Half of the new order book is expected to be awarded next calendar year.

• Gamuda’s internal target for FY24F property sales is RM6bil, based on locked-in unbilled sales together with faster-than-expected sales and construction of quick turnaround projects (QTPs), of which 50% of the sale target would be coming from in-hand sale order in the United Kingdom, Australia and Singapore which has yet to be recognised in FY23. We expect the revenue to be recognised in FY24F subject to completion of the QTPs. Vietnam contributed 67% of QTP presales with strong take-up rates of 70% for Artisan Park and 84% for Elysian, in which both are expected to be fully sold in 2024 and 2025 respectively. The West Hampstead QTP project in London is expected to be fully sold in 2024 with a takeup rate of 61%. Gamuda Park Township in Rawang, Selangor is expected to be launched in FY24F.

• 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 FY24F PE of 9.8x, significantly below its 5-year average of 14x.

Source: AmInvest Research - 29 Sept 2023