Investment Highlights

• We maintain BUY recommendation on Gamuda with a higher fair value (FV) of RM6.73/share (from an earlier RM5.17/share) after incorporating the latest residual holding company net book value to our SOP calculation. Our FV reflects a 3% premium for its unchanged 4-star ESG rating and implies a FY24F P/E of 15x, near the group’s 5-year average.

• Our visit to Gamuda’s Sydney project sites and engagements with Austrade officials last week reaffirmed that those projects remain on track and unlikely to be cancelled, hence maintaining our forecasts for now. Recall in July this year, NSW Premier Chris Minns indicated the possibility of cancelling or delaying the Sydney Metro West project due to escalating cost estimates.

• From our channel checks, we understand that the state is reviewing the addition of more stations to the original route to generate additional commercial and residential development value. This could mean that there may instead be additional variation work orders to the AUD2.2bil contract value awarded to Gamuda Australia. Furthermore, our engagements with Austrade confirm that any cancellation of the project would cost the state more.

• As at 31 July 2023, Australia accounts for 58.3% of Gamuda’s outstanding construction order book of RM21.8bil (including RM0.4bil contract novation from the acquisition of DTI from Downer group).

• Gamuda is currently bidding for AUD5bil-AUD6bil Australian projects (70%-84% of the group’s outstanding order book). In our view, Gamuda Australia, together with its asset acquisitions, are well positioned to capitalise on the multiple job pipeline in Australia due to its recent spate of successful bids, Gamuda’s seasoned and innovative engineering team, lower corporate overheads and offshoring work to a wider pool of engineering talent vs. the country’s manpower shortages.

• We also understand that Gamuda is currently exploring equity investments up to 40% into renewable energy projects, which include pumped hydro energy storage developments with a Malaysia-based specialist subcontractor as well as Petronas’ clean energy operator, Gentari, which could entail a tunneling contract worth AUD2bil.

• Over the next 7 years to 2030, Infrastructure Partnerships Australia estimates projects worth AUD328bil in energy, AUD127bil in rail and AUD67bil in roads. Totalling AUD639bil in non-discretionary commitments, this represents 89x Gamuda’s outstanding order book.

• Gamuda currently trades at an attractive FY24F P/E of 10.5x, which is significantly below its 5-year average of 15x.

Source: AmInvest Research - 20 Nov 2023