• Gamuda Berhad's (Gamuda), in partnership with Asia World Engineering & Construction Co. (AWEC) from Taiwan, successfully won the contract for the Kaohsiung Mass Rapid Transit Metropolitan Line Package YC01, boosting their order book to RM23.6bn

• Gamuda and AWEC's joint venture takes on its second railway project in Taiwan, addressing Kaohsiung's growing urban population.

• Maintain our BUY recommendation on Gamuda with SOPderived TP of RM5.16.

Infra journey expanded further

In a recent announcement, Gamuda, in collaboration with Taiwan-based Asia World Engineering & Construction Co. (AWEC), has successfully won the contract to design and build Package YC01 of the Kaohsiung Mass Rapid Transit (MRT) Metropolitan Line (Yellow Line). This project was awarded by the Taiwan Kaohsiung City Government's Mass Rapid Transit Bureau on 25th October 2023, with a contract value of NTD 23,399,600,000 (RM3.45bn). In this joint venture, Gamuda holds a majority share of 88%, while AWEC has a 12% stake. This new win elevates Gamuda's outstanding orderbook to RM 23.6bn and is expected to contribute to earnings in FY24.

Gamuda-AWEC's Second Railway Endeavor

This marks the second railway project in Taiwan carried out by the joint venture of Gamuda and AWEC, building on the success of their previous partnership in securing the TaoYuan City Underground Railway Project Package CJ18 in October 2022. The Package YC01 project is expected to take about 107 months (approximately 9 years) to complete. It involves constructing a 4.4km railway track in NiaoSong District, including 3.5km of underground twin bored tunnels with 3 underground stations and 0.9km of elevated tracks with 1 elevated station. This project is a critical part of Kaohsiung's ongoing efforts to expand and improve its public transportation system in the NiaoSong District, addressing the needs of the city's growing urban population. The Yellow Line represents a substantial addition to Kaohsiung's existing four-line MRT network and is crucial for strengthening the city's transportation infrastructure.

Local Infrastructure on the Rise

AWEC has a notable track record in the development of infrastructure in Taiwan, particularly in their involvement in various packages related to the Kaohsiung MRT and Kaohsiung City Underground Railway Projects. On the other hand, Gamuda has initiated several infrastructure projects in the region, including the Seawall reclamation at Taipei port, Songshu to Guanfeng underground transmission line, and the Guantang Marine Bridge.

This recent accomplishment further underscores Gamuda's commitment to securing RM25bn in new contracts over the next two years. We believe these prospective projects might encompass the Bayan Lepas LRT, MRT3, the Pan Borneo Sabah highway, and flood mitigation plan. Management has guided that their construction earnings will primarily arise from local front, as there is an expectation of expediting more local infrastructure projects by the end of this year.

Elevate earnings

The recent win in this Taiwanese project has elevated Gamuda's outstanding orderbook, approaching RM24bn, providing substantial earnings visibility up to FY27. As most of their ongoing projects in the region have achieved an average progress of 60%, we anticipate better profit margins in FY24. Additionally, we believe that Gamuda will sustain its momentum on the orderbook replenishment with another five projects in the bidding pipeline within the upcoming 3 to 15 months.

Maintain a BUY with TP of RM5.16

We reiterate our BUY recommendation on Gamuda with SOP-derived TP of RM5.16. Our positive view on the stock remains unwavering, underpinned by: 1) robust earnings outlook supported by the company's substantial outstanding orderbook of RM23.6bn and unbilled property sales of RM6.7bn, 2) Gamuda’s prominent position as the leading contender for projects like MRT3 and Penang LRT, and 3) its strong international presence

Source: BIMB Securities Research - 26 Oct 2023