• Our visit to Gamuda’s maiden project in Australia, the Sydney Metro WestWestern Tunnelling Package, provided visibility in terms of execution.

• The project is already 50% completed with VOs up to date. There are also vast opportunities in renewable energy, according to the company.

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

All’s Well Down Under; SMW-WTP Well on Track

We attended Gamuda’s site visit to its maiden project in Australia, the Sydney Metro West-Western Tunnelling Package (SMW-WTP), which is c.50% completed. One tunnel boring machine (TBM) has been launched while another will follow soon to complete the 9km twin tunnels from Sydney Olympic Park to Westmead by 3QCY25F. The TBMs feature artificial intelligence software developed by Gamuda, a first in Australia but which was used in Malaysia’s MRT Line 2. Payments for the variation orders (VOs) incurred for the Parramata section due to a change in design are up-to-date. According to Gamuda, Australia infrastructure projects are cash positive from the start as there is advanced payment of up to 10% and the billing cycle is every 15 days. Overall, the visit provided visibility on Gamuda’s ability to execute in Australia, which has become an important market and contributes 41% (RM11.4bn) of its total orderbook of RM27.8bn currently. Gamuda targets to double its Australian revenues to a sustainable A$3bn/year in 2-3 years’ time. The challenge for Gamuda is to reduce its overheads, which we believe can be achieved by offshoring some of the detailed design works to Malaysia given the lower cost structure.

Key Takeaway From Every Meeting: a Growing Energy Market

The one consistent takeaway across our meetings with industry experts during our Australia visit was the Australia government’s commitment to renewable energy. Gamuda aims to leverage its partnership with ERS Energy in this aspect and appears to be bullish on pump hydro as the EPC portions involve substantial tunnelling and reservoir works. In the energy transmission sector, it is working with a specialist to tap the Transgrid pipeline in NSW for projects worth A$35bn. The low hanging fruits from the recently acquired DT Infrastructure (DTI) is the ability to obtain the necessary accreditation to penetrate the defence industry and the infrastructure systems market. Both segments have pretax margins of 10-20%, higher than traditional road and rail projects’ 5-10%. Gamuda Engineering Australia’s tenderbook is c.A$5bn-6bn and the more significant outstanding tender is the Suburban Railway Loop in Victoria.

Reiterate Add, TP RM5.65

We reiterate our Add rating and SOP-derived TP of RM5.65. Current valuations of 12x CY24F P/E and 1.1x 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, which could derail its construction progress there, and delay in job awards and higher raw material costs.

Source: CGS-CIMB Research - 20 Nov 2023