Gamuda has entered into a joint venture agreement (JVA) with Sabah Energy Corporation SB (SEC) and Kerjaya Kagum Hitech JV SB (KKHJV) at 45:40:15 stakes ratio to form UPP Holdings to develop and operate Upper Padas Hydroelectric Power Plant in Sabah. From this JVA, Gamuda is expected to receive two tiers of income: 1) revenue (total contract value amounted to approximately RM3bn excluding interest) from the power plant construction and 2) recurring income upon the commercialisation of the power plant (expected by FY29). We opine that Gamuda would partake in the construction of the power plant (with 50% stake) and thus will be adding 6% to its construction orderbook to RM25.5bn. Separately, details are still light for us to estimate the actual recurring income but based on our assumptions, we estimate that it could contribute recurring income to the tune of RM42m per year during the concession period (assuming 30 sen/kWh tariff, 70% effective power generation per annum and funding via 80% debt and 20% equity). All told, we make no changes to our forecasts considering the construction contract a part of our FY24F Gamuda’s orderbook replenishment target as well as pending finalisation of the power purchase agreement (PPA) terms. Hence, we retain our Outperform rating with an unchanged sum-of-the-parts derived TP of RM5.00, pegged at 15x PER sector average.

• Hydro plant construction works. Works are expected to commence inFY24 and complete by FY25. Contract sum net to Gamuda is estimatedat RM1.5bn (total construction contract under JVA is at RM4bn whereRM3bn represents construction cost and the reminder to service debt.Inclusive of this contract, Gamuda’s job replenishment is now at about35% of our FY24 orderbook replenishment target of RM13bn. Weestimate that the contract would contribute less than 1% in net profit tothe Group per annum, based on certain levels of work completion.

• Our take. Overall, we are optimistic on this development as it would becontributing a new recurring income base for the Group alongside inachieving Gamuda Green Plan goals. As the Group has highlighted itsfocus within the domestic construction vicinity in FY24, we expect moreto come as more projects to be rolled out in due course.

Source: PublicInvest Research - 31 Oct 2023