■ We lift FY24-FY26F EPS and tweak our TP higher to RM5.65. Reiterate Add. 

■ SMW-WTP continues to progress well (37% completed as at end-4QFY23 vs. 27% at end-3QFY23) with minimal risk of project cuts or cancellation.

■ Key highlight from Gamuda’s analyst briefing is its aggressive guidance of a doubling in revenue to RM17bn-18bn in FY7/24F.

Ending FY23 on a high

4QFY23 core net profit came in at RM266m, bringing FY7/23 core net profit to RM875m (+9% yoy), above at 113% of our forecast and 112% of Bloomberg consensus’. The key highlight for 4QFY23 was the 15% yoy rise in construction pretax profit to RM181m, anchored by higher recognition for its maiden Australian project, the Sydney Metro West– Western Tunnelling Package (SMW-WTP), which reached 37% completion as at end- 
4QFY23 (vs. 27% at end-3QFY23). Gamuda Engineering’s revenue surged 79% in 4QFY23 to c.RM6bn, driven by a four-fold increase in overseas revenue. 4QFY23 property pretax profit fell 8% yoy to RM173m, but the key highlight was 4QFY23 presales of RM2.2bn, bringing FY23 presales to RM4.1bn (52% local, 48% overseas). While this was short of its RM4.5bn target, the RM2.2bn presales in 4Q alone surpassed 9MFY23’s RM1.9bn due to stronger take-up rates for its quick turnaround projects (QTP).

Key analyst briefing highlights

At its analyst briefing today (27 Sep), Gamuda shared its revised target to double its revenue in FY24F to RM17bn-18bn (more aggressive than its earlier guidance of RM13bn). It said this is on the assumption of faster recognition of its existing orderbook of RM21.8bn as at 31 Jul 23, more than doubling of its property revenue yoy to RM6bn, backed by lumpy recognition of RM6.7bn unbilled sales for projects in Singapore, the UK and Australia (where accounting recognition is upon project completion), and strong takeups for its QTP projects. It continues to guide for RM25bn total new orders in FY24-25F. Over the next 3-15 months, it expects to clinch 6 major projects — MRT 3 tunnelling, Suburban Rail Loop East second package, infrastructure project in Taiwan, Pan Borneo Sabah highway, Penang LRT, and a renewable energy project locally. Gamuda also reassured that its SMW-WTP project is progressing well and that the 2023-24 budget of New South Wales reaffirmed the state government’s commitment to this project.

Reiterate Add; earnings forecasts raised, TP tweaked higher

We raise our FY24F/FY25F/FY26F EPS by 15%/20%/19% to factor in higher new order wins and property sales (see pg 2, Fig 1). Note that our FY24F revenue assumption of RM14.5bn is below Gamuda’s guidance of RM17bn-18bn. We tweak our SOP-derived TP higher to RM5.65, penciling in higher potential new order wins, balanced by higher net debt (see pg 2, Fig 3). Current valuations of 11x CY24F P/E and 1.0x CY24F P/BV (1 s.d. below 18-year mean) look extremely compelling, in our view, considering its strong growth trajectory and record orderbook. Key downside risks: potential labour issues locally and abroad derailing its construction progress, and delay in job awards.

Source: CGS-CIMB Research - 27 Sep 2023