Gamuda, shortly after its 1QFY23 results, has bagged an AUD1bn (approx. RM3.0bn) project with its Australian partner, John Holland from Transport for New South Wales, procurement entity for New South Wales Government in Australia. The contract awarded is a Design & Construct project of M1 Pacific Motorway – extension to Raymond Terrace, from Black Hill to Tomago Works (Southern Package). Based on Gamuda’s 40% stake in the JV, the contract value attributable to Gamuda is RM1.2bn. Inclusive of this contract, the Group’s outstanding orderbook rose to an all-time high of RM16.0bn. Nonetheless, we are leaving our forecasts unchanged as this is within our FY23 orderbook replenishment assumption of RM10bn. Our Outperform rating with an unchanged sum-of-the-parts derived TP of RM4.30 is maintained.

• M1 Pacific Motorway – Extension to Raymond Terrace will link the M1 to the Pacific Motorway. It is delivered through two packages: 1) Black Hill to Tomago (Southern Package), and 2) Heatherbrae Bypass Package (Northern Package).

• Black Hill to Tomago package includes design and construct of a 10- kilometre dual carriageway motorway link between M1 Motorway at Beresfield & Tomago, major interchanges at Black Hill, Taroo & Tamogo and construction of nine bridges including a viaduct of approx. 2.6- kilometre in length across Hunter River & floodplain. The works commence immediately and is expected to complete in 4QFY28 (approximately 67 months, or 5.6 years). Contract sum is AUD1bn, equivalent to approximately RM3.0bn (c. RM1.2bn net to Gamuda).

• Earnings outlook. Gamuda’s 40% stake in its joint venture with John Holland would render an additional RM1.2bn to its current order book from RM14.8bn to RM16.0bn. Considering a margin of 8% as well as a base corporate tax rate in Australia of 30%, this project is estimated to contribute net profit of c. RM3.4m in FY23, RM13.8m each in FY24 – FY27, and RM10.3m in FY28 based on certain levels of work completion each year. We make no adjustment to our earnings estimates however, considering this as part of our orderbook replenishment assumption of RM10bn, in line with management’s job replenishment target.

• Our view. Though Gamuda was unsuccessful in its bid for the RM6.1bn Northeast Link Road, the award of this project makes up for the shortfall, contributing 13% to its RM9bn target orderbook from Australia for FY23. To recap, the Group has a target orderbook of RM25bn for FY23 and FY24, which comprise of RM18bn from Australia, RM2bn each from both Singapore & Taiwan and the remaining, we presumed, from Malaysia. We expect to hear from Gamuda soon, as we anticipate the result of ~RM13bn Suburban Rail Loop by 2QFY23.

Source: PublicInvest Research - 23 Dec 2022