GAMUDA alongside Laing O’ Rourke has won a AUD2.16b (RM6.5b) Western Tunnelling package for Sydney Metro West. They will be delivering 9 kilometres of twin metro rail tunnels between Sydney Olympic Park and Westmead. The contract spans 4 years and is expected to be completed by 2025. Positively surprised by the win as we had not expect Gamuda to clinch this contract and quantum of contract is also much larger-than-expected. Increase earnings by 15%/28%. Upgrade to OP on higher SoP-TP of RM3.60 (from RM2.80)

Gamuda positively surprised on multiple fronts with their AUD2.16b win over the Sydney Metro West – Western tunnel package. List of surprises as below:

1. This contract sum was larger-than-expected. Recall the first Sydney Metro West Centre Tunnel package (awarded to Acciona-Ferrovial JV) was only AUD1.96b while tunnel length was longer at 11km. Hence we had opined that this shorter tunnel of 9km to be in a lesser quantum of c.AUD1.6b.

2. We had ascribed a low probability for Gamuda to win this tunnelling package as they were bidding against extremely seasoned tunnelling specialist consortium ie John Holland-CBP-Ghella who has won multiple tunnelling jobs across New South Wales, Australia.

3. Gamuda will be the lead contractor and will recognise all the revenue and profits under their PNL while their partner in the job (Laing O Rourke) will only be paid a fee. We had initially thought that would be 50:50 or 60:40 split when it comes to revenue and profit recognition. Essentially, Gamuda gets to effectively recognise the entire AUD2.16b (RM6.5b) win in their orderbook.

4. YTD wins of RM7.4b (RM6.5b for Sydney Metro + RM0.87b effective win from Singapore MRT) has surpassed our FY22E replenishment target of RM5b.

Twin maiden exposure. Through this maiden win in Australia and their recent maiden MRT win in Singapore (60% stake of RM1.45b), Gamuda has proved that their homegrown tunneling expertise can be exported internationally and compete neck to neck with the big boys. This also effectively open the doors to future tunneling/infrastructure works in Australia and Singapore. Note that Sydney Metro is a relatively new network of train lines (first line was operational in 2019) and there will be a number of future lines coming up in the mid-long term (refer overleaf for potential future lines) – providing sustainable visibility to future job flows.

In view of the win, we raise our FY22E replenishment assumption to RM12.5b – catering for an additional RM5b reclamation works at PSR. In tandem with the increased replenishment, our FY22E/FY23E earnings are raised by 15%/28%. With outstanding orderbook standing at RM10.4b post win, our previous concern over earnings falling off a cliff past MRT2 is alleviated. FY23E replenishment is kept at RM5b.

Upgrade to OP (from MP) with higher SoP-TP of RM3.60 (from RM2.80) with higher construction FY23 PER (rolled over from FY22E ) of 16x pegged to +1SD from 5 year mean (from 14x) as Gamuda’s recent wins at Australia and Singapore has pivot themselves into the international infra space and has relinquish a great reliance on domestic job flows which are currently lackluster due to government funding constrains.

Source: Kenanga Research - 2 Mar 2022