Gamuda’s 1QFY24 core net profit came in weaker than expected (-17.9% QoQ, >100% YoY) with its construction billings still at early stages but lifted by its property development business mainly – the division achieved 45.8% YoY growth due to better property margins overall. Nevertheless, 1QFY24 core net profit is still below ours and street estimates, accounting for only 15.6% and 18.3% respectively. Though 1QFY24 performance was sub-optimal, we believe that the Group’s performance would catch up in the subsequent quarters supported by lumpy revenue recognition from its on-going construction projects, coupled with property sales from the quick-turnaround projects (QTPs). That aside, Gamuda has also announced its successful bid in Singapore MRT project – the Cross Island Line Phase 2. The Group clinched the design and construction of West Coast station and tunnels worth SGD509.6m (approx. RM1.8bn). With this new win, unbilled orderbook is now estimated at RM25.8bn whereas YTD orderbook replenishment represents 34.9%, within our FY24F assumption of RM13bn. We maintain our forecasts for now and Outperform call, with an unchanged SOTP-based TP of RM5.00, pegged at 15x PER sector average.

• 1QFY24 pre-tax earnings improved 29.8% YoY, attributed to better profitability in property development division from both domestic and overseas projects. Pre-sales achieved in 1QFY24 were only 8.1% of its FY24 target of RM5.6bn. We understand that the lower property sales are due to lack of meaningful launched in Vietnam. We expect earnings from this segment to improve as the Group continue to launch new projects i.e.: Gamuda Cove, Gamuda Gardens, twentyfive7 in Selangor, Gamuda City in Hanoi, Elysian in Ho Chi Minh City and various QTPs.

• Clinched Singapore Cross Island Line Phase 2 MRT project. The job, valued at RM1.8bn marks Gamuda’s third contract in the Lion City’s rail infrastructure projects. Scope of work involves the design and build of one underground (West Coast) station with two tunnels of about 1.9km in length. Construction work will begin in 2QFY24 and to complete by FY32. Assuming a mid-single digit margins, we expect this project would contribute 1-5% per annum in net profit during construction period. We make no adjustment to our forecasts considering that this makes up a part of our RM13bn FY24F orderbook replenishment assumption. YTD new wins represent 34.9% of our FY24F orderbook replenishment assumption of RM13bn.

• Prospects. There could be a possible variation order on its Sydney Metro West project (The Guardian) as the local government is exploring the feasibility of adding two new stations along the line, including Rosehill which falls on Gamuda’s existing package. We think these additional stations could be valued at approximately AUD1bn (RM3bn), representing a 45% bump from the original package value of AUD2.2bn (RM6.6bn). Also, we anticipate healthier margins from its progressive construction projects (mainly in Australia) and property sales from quick turnaround projects (QTPs).

• Dividend. Management declared its first interim dividend of 6sen per share this quarter, rendering a dividend yield of 1.4% at current share price.

Source: PublicInvest Research - 7 Dec 2023