Investment Highlights

• We maintain BUY on Gamuda with an unchanged SOPbased fair value (FV) of RM5.17/share (Exhibit 3). 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, together with Asia World Engineering & Construction Co. (AWEC), a Taiwan-based construction company have accepted a contract award from Kaohsiung City Government’s Mass Rapid Transit Bureau for the Design and Build of the Mass Rapid Transit (MRT) Metropolitan Line (Yellow Line) Civil Engineering, Package YC01 (Exhibit 1 & 2) in Taiwan R.O.C. We view the contract award positively. This will be Gamuda’s first major win in the Taiwan MRT space as previous contract secured was small at below RM1bil. The project establishes the group’s presence and track record in the country’s infrastructure development.

• The contract sum is about RM3.4bil. Out of this, Gamuda’s share is 88% or RM3bil. The Project to construct a 4.4km railway track located in NiaoSong District is expected to comprise of a 3.5km underground twin bored tunnels (with 3 underground stations) and 0.9km of elevated tracks (with 1 elevated station). These will form part of the expansion of Kaohsiung city's public transportation system.

• Construction works are expected to commence immediately spanning a duration of 9 years. We estimate the project to contribute RM26.7mil per annum or 2% to Gamuda’s FY24F PBT.

• However, we make no changes to our FY24F-FY26F earnings as the award is within our FY24F replenishment assumption of RM13bil, in line with Gamuda replenishment target of RM25bil for the next 24 months. With this award, Gamuda FY24F new job wins totalled RM3bil while the YTD outstanding orderbook stands at RM24.8bil.

• Looking ahead, we expect more contracts to be awarded to the group. These include MRT3, Penang LRT, Australia sub urban loop (SRL) 2nd Package and more quick turnaround projects (QTP) across regions.

• Key risks: (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, which is significantly below its 5-year average of 14x.

Source: AmInvest Research - 26 Oct 2023