• Gamuda clinches the RM3.5bn Kaohsiung MRT package in Taiwan.

• An important win: i) largest win in Taiwan, penetrating the MRT space with a main contractor role, and ii) brings it closer to its target of doubling orderbook.

• Reiterate Add and SOP-based TP of RM5.65.

Clinches RM3.5bn Project in Taiwan

• Gamuda has won a NTD23.4bn (c.RM3.45bn) contract with its partner Asia World Engineering & Construction Co (AEWC) for the design and build of the Kaohsiung Mass Rapid Transit (MRT) metropolitan line package YC01 in Taiwan from the Kaohsiung city government. Gamuda has an 88% stake in this project, and AWEC has 12%. The project duration is for 9 years.

• AWEC is a general civil construction contractor in Taiwan, and this is the second railway project in Taiwan undertaken by Gamuda and AWEC. The first was the joint TaoYuan City Underground Railway Project Package CJ18 secured in Oct 22.

• The current project win is a 4.4km railway track located within the NiaoSong District, comprising 3.5km underground twin bored tunnels (with 3 underground stations) and 0.9km of elevated tracks (with 1 elevated station).

• The project is part of a substantial infrastructure initiative currently underway in Kaohsiung, Taiwan, with the primary goal of expanding and improving the Kaohsiung city's public transportation system within the NiaoSong District.

Breaking Into Taiwan’s MRT Landscape With Main Contractor Role

• With this win, Gamuda would have six Taiwan projects in its orderbook, bringing its Taiwan exposure to c.RM5bn and total outstanding orderbook to RM24.8bn.

• While this is not its first MRT win in Taiwan (it also won another Kaohsiung MRT project in 2002 worth RM1bn), this current win is the largest MRT win in Taiwan and also the largest overall contract win in Taiwan, where it has a substantial main contractor role with its 88% stake.

• We believe this is a result of the strong reputation it gained over the years in Malaysia, having completed MRT Line 1 and 2.

• Estimated project pretax profit margin guidance is 8%, similar to its Australian projects.

• We understand from the company that there is another outstanding sizeable MRT tender in Taiwan, and it expects an award in the next 6 months.

Doubling of Orderbook and Revenue

• Gamuda continues to guide for RM25bn total new orders in FY24-25F. This is largely within our forecasts, and this win brings it a step closer to achieve this target. Over the next 3-15 months, it expects to clinch 6 major projects — MRT 3 tunnelling, Suburban Rail Loop East second package, other infrastructure projects in Taiwan, Pan Borneo Sabah highway, Penang LRT, and a renewable energy project in Malaysia.

• At its analyst briefing on 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, more than doubling of its property revenue 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 take-ups for its Quick Turnaround Projects.

Reiterate Add and SOP-based TP of RM5.65

• We reiterate Add, with an SOP-based TP of RM5.65. Its current valuations of 12x CY24F P/E and 1.0x CY24F P/BV (1 s.d. below 18-year mean) still 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 there, and delays in job awards. Re-rating catalysts are delivering higher-thanexpected new order wins, which will translate into better revenue and earnings.

Source: CGS-CIMB Research - 26 Oct 2023