Gamuda’s full year core net profit advanced 10.6% YoY in FY23 albeit registering softer margins across its business divisions. The Group reported a new-high topline of RM8.2bn, a staggering 68% improvement YoY. Nonetheless, FY23 full year core net profit is broadly in-line with ours and street estimates, accounting for 101.5% and 101.8% respectively. We reckon that the Group’s profit margin will improve in FY24 as most projects have passed c. 40% progress mark which translates to higher billings, coupled with property sales from quick turnaround projects (QTPs) which generally, fetches better margins. All told, we have also lifted our FY24 orderbook replenishment assumption to RM13bn in view of key infrastructure project rollouts post election in Malaysia, as well as robust infrastructure projects planned in Gamuda’s key markets i.e.: Australia, Singapore and Taiwan. Hence, we raised our earnings projection by 20% on average, in FY24-26F due to higher billings and better margins assumed. Our Outperform call is retained, though with a lower SOTP-based TP of RM5.00 (previously RM5.10), pegged at 15x PER sector average due to share base dilution effect.

• FY23 topline leaped 61.8% YoY, attributed to higher progress billings from its Australia and Taiwan projects – Sydney Metro West (40% completed), Taiwan marine bridge (~79% completed including the extension) & seawall (62% completed). The construction segment reported 64.6% YoY expansion in topline contribution whereas the property division recorded a meagre improvement of +1.6% YoY in FY23 undermined by slower domestic property sales on top of low overseas property contribution, predominantly from Vietnam.

• Another RM25bn orderbook target in FY24-25. We opine that new wins on construction orderbook in FY24 would be largely buoyed by domestic projects and small-to-mid-sized projects from its recently acquired subsidiary, DTI Australia. In FY25, we expect new wins will be primarily overseas-focused. Though the Group did not succeed clinching the Suburban Rail Loop East Package C (16km, Cheltenham to Glen Waverly) project bidding, it is still hopeful that it can win Package D (10km, Glen Waverly to Boxhill) worth approximately AUD10.5bn (~RM31.5bn), which the Group has reportedly participating as well. Outcome of the successful bidder is anticipated by 1QFY25. Existing construction orderbook amounted to RM21bn, providing earnings visibility up to FY27.

• Property sales to be supported by Vietnam QTPs. As of 4QFY23, Gamuda has acquired 7 QTP deals with a total GDV of RM7bn. The Group has guided an internal target of RM5bn sales in FY24, unbilled property sales is at RM6.7bn as of 4QFY23. We posit property earnings from FY24 onwards will be led by overseas property sales considering Vietnam makes up 84% (RM6.8bn) of the total QTP GDV of RM7bn. We anticipate at least 2 additional QTPs acquisition in FY24, likely to be located overseas.

• Prospects. We reckon that the Group’s profit margin will improve in FY24 albeit registering a lower profit margin in FY23 (10% at PATAMI level), as most projects have passed c. 40% progress mark which translates to higher billings in subsequent quarters, coupled with property sales from quick turnaround projects (QTPs) which in general, fetches better margins.

Source: PublicInvest Research - 29 Sept 2023