Gamuda 3QFY23 core net profit advanced 54.1% QoQ, supported by its engineering & construction division predominantly. Its core division registered >100% growth QoQ due to progressive billings from its Australia and Taiwan on-going construction projects. We deem 3QFY23 core net profit as broadly in-line with ours and street estimates, accounting for 71.5% and 76.4% respectively. At the same time, Gamuda, after 8-long years since 2015, announced for the implementation of Penang Transport Master Plan (PTMP) via the award for the Phase 1 Reclamation Works of Penang South Island (PSI) A for RM3.5bn. Our estimated value of RM4-4.5bn for this job is still achievable as the RM3.5bn awarded has not include common infrastructure works that could go up to RM1bn in value. Including this job win, the Group rose to RM10.6bn or already constituted 70.7% of our FY23 orderbook replenishment assumption of RM15bn. All told, no change to our earnings estimates. The Group also announced a second interim dividend of 6.0 sen, bringing YTD dividends to 50 sen. Our Outperform call is affirmed, with an unchanged SOTP-based TP of RM5.10, pegged at 15x PER sector average.

• 1QFY23 revenue jumped 58.2% QoQ. The Group’s engineering & construction revenue jumped >100% QoQ due to higher progress billings aside from higher revenue recognition as a result of exchange rate differences, from its overseas project from Australia and Taiwan. Its property division rose 13% QoQ as domestic property sales weakened given the difficult trading environment currently.

• Earnings outlook. We expect some earnings slowdown within its property segment, predominantly dragged by slower domestic sales as the sector is undermined with short-term challenges i.e.: higher borrowing costs, in tandem with the slower economic outlook. Nevertheless, the Group is well supported by its strong existing construction orderbook of RM23bn, providing earnings visibility up to 7 years. We foresee steady construction earnings going forward – most projects are >10% off-ground and on track, which leads to uninterrupted progress billings. Elsewhere, Gamuda has extended Group Managing Director’s, Dato’ Lin Yun Ling for another five years.

• PSI Island A Phase 1 reclamation awarded. The Group announced for the implementation of PTMP via the award for the Phase 1 Reclamation Works of PSI Island A for RM3.5bn. Our estimated value of RM4-4.5bn for this job is justified given, the RM3.5bn awarded has not included common infrastructure works that could go up to RM1bn in value. Including this job win, the Group has achieved RM10.6bn or 70.7% of our FY23 orderbook replenishment assumption of RM15bn. Assuming a low teen margins, this job would contribute about RM65.2m on average per annum to the Group’s bottomline, over the reclamation period of c.5 years, commencing from 4QFY23.

• PTMP salient features unchanged. Earlier last month, the PSI project has been scaled down with the cancellation of Island B and C as the Federal Government has expressed to provide funding for the Bayan Lepas (BL) LRT. Despite of the scaling down and the lack-of-need to fund the BL LRT, there shall be no changes in terms of the execution of PSI Island A. Recall, peak funding is expected to occur in Year 4 (FY26) as a result of Phase 1 Island A reclamation works done prior to land sales. We anticipate a lower funding deficit of RM3bn in Year 4 (FY26), compared to RM4bn as estimated previously, due to the lack-of-need to fund BL LRT, providing relieve to the Group’s cashflows. As of 3QFY23, Gamuda has a net gearing of 0.1x. Given the maximum gearing cap of 0.7x, we calculate there is an excess of c. RM3.0bn for new borrowings.

• Tender orderbook update. On Australia waters, the result of ~RM13bn Suburban Rail Loop is expected to be announced by 1QFY24. On home ground, the MRT3 CMC301-303 tender validity was once again, extended to end-Sep from end-June. Package CMC303 aside, Gamuda has previously expressed their interest to participate in the systems turnkey tender worth c.RM4.6bn however, was yet to be submitted. We believe the award of MRT3 will only start possibly in early-2024 the earliest.

Source: PublicInvest Research - 23 Jun 2023