GAMUDA along with Laing O’ Rourke has won an AUD2.16b (RM6.5b) Western Tunnelling package for Sydney Metro West. They will be delivering 9km of twin metro rail tunnels between Sydney Olympic Park and Westmead. The contract spans four years and is expected to be completed by 2025. Positively surprised by the win as we had not expected 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 of 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 worth AUD1.96b while tunnel length was longer at 11km. Hence we had estimated that this shorter tunnel of 9km to be worth a lower quantum of c.AUD1.6b.

2. We had ascribed a low probability for Gamuda of winning this tunnelling package as they were bidding against extremely seasoned tunnelling specialist consortium ie John Holland-CBP-Ghella which 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 in their book while their partner in the job (Laing O Rourke) will only be paid a fee. We had initially expected 50:50 or 60:40 split when it comes to revenue and profit recognitions. 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 it can compete neck to neck with the big players. This also effectively opens 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 became was operational in 2019) and there will be a number of future lines coming up over time (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 has been addressed. FY23E replenishment is kept at RM5b.

Upgrade to OP (from MP) with higher SoP-TP of RM3.60 (from RM2.80) with higher construction FY23E PER (rolled over from FY22E ) of 16x pegged to +1SD from 5-year mean (from 14x) as Gamuda’s recent wins in Australia and Singapore has propelled them into the international infra space and reducing reliance on domestic job flows which are currently lackluster due to government funding constraints.

Source: Kenanga Research - 2 Mar 2022