CEO Morning Brief

Analysts See Gamuda Clinching More Hyperscale Data Centre Projects

edgeinvest
Publish date: Tue, 28 May 2024, 10:41 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (May 27): Analysts foresee Gamuda Bhd (KL:GAMUDA) to bag more project portfolios in the data centre (DC) sector, after the engineering and construction company recently secured contracts for the construction of a hyperscale DC in Elmina Business Park, with a combined value of RM1.7 billion.

Gamuda’s established regional presence, track record, and the current growth in DC investment position the group well for further opportunities, according to Hong Leong Investment Bank (HLIB) Research.

"The latest win brings Gamuda’s unbilled order book to RM25.8 billion (an additional 7%), with DC jobs comprising 8% of the estimated unbilled construction order book,” HLIB said. These DCs projects offer "outsized earnings contributions", due to their shorter execution periods and superior margins, as compared to domestic tunnelling projects, the research house noted on Monday.

Looking ahead, HLIB anticipates additional order book expansion for Gamuda from the formalised contracts for several significant projects, including the Penang Light Rail Transit (with Gamuda’s stake valued at approximately RM5 billion), the Upper Padas hydro project (around RM3 billion), and Sydney Metro West variation orders.

Additionally, an award decision is expected for Package D of the Suburban Rail Loop in Australia, along with other infrastructure opportunities, HLIB noted.

On valuation, Gamuda shares are currently trading at an attractive 17.5 times forward earnings, according to HLIB, which raised its target price for the counter to RM6.88.

Analysts remain broadly bullish on Gamuda, with 17 out of 19 recommending 'buy' calls. TA Securities has downgraded the stock to 'sell', while Macquarie has an 'underperform' call. CLSA, meanwhile, downgraded its call to 'accumulate'. The consensus 12-month target price stood at RM6.50, Bloomberg data showed.

TA Securities cautioned that Gamuda is “fairly valued after the recent rise in its share price”. The research house, however, remains optimistic about the company’s job contracts.

The stock climb as much as 3.17% on Monday, reaching a high of RM6.24, before paring gains to settle at RM6.10, still up by 50 sen or 0.83%, giving it a market capitalisation of RM16.9 billion. On a year-to-date basis, Gamuda has racked up gains of over 33% so far this year.

TA Securities said the contracts won by Gamuda are expected to significantly boost its total outstanding order book, estimated to reach approximately RM26.3 billion, translating into 4.8 times construction revenue for the financial year ended July 31, 2023 (FY2023).

“Assuming a profit before tax margin of 9%, these projects are expected to contribute a net profit of RM116 million throughout the construction periods,” TA Securities added.

Last Friday, Gamuda announced that it had secured two separate contracts for the construction of a hyperscale DC in Elmina Business Park, with the first contract worth RM815 million awarded by Sime Darby Property Bhd (KL:SIMEPROP) for the construction, completion, testing, and commissioning of the DC.

The second contract, valued at RM928.6 million, is from Pearl Computing Malaysia and involves the fit-out, testing, and commissioning of mechanical, electrical, and plumbing works for the same DC in Elmina Business Park.

Source: TheEdge - 28 May 2024

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