GAMUDA has won Package 1 of Rasau Water Supply Scheme (Phase 1) worth RM1.97b. Post win, YTD replenishment stands at RM11.7b – tracking in line with our RM12.5b target for FY22. This contract is expected to deliver PBT margins of 8-10% and will span 35.5 months with completion slated in June 2025. Maintain FY22-23E earnings. Keep OP with unchanged SoP-TP of RM4.20.

Wins Rasau Water Supply Scheme contract. GAMUDA has secured a RM1.97b contract from Air Selangor as the main contractor for Package 1 of the Rasau Water Supply Scheme (Phase 1). This contract entails: (i) an intake structure with 1,400MLD water drawing capacity, (ii) raw water pumping mains/pipeline, (iii) a 700MLD water treatment plant and its associated works. The project will span 35.5 months with tentative completion target in June 2025. Note that Package 2 and 3 (for Phase 1) of the Rasau Water Supply Scheme which comprise the pipelines and reservoir for treated water was already awarded back in December 2021 to Taliworks.

The rationale behind the Rasau Water Supply Scheme. This scheme is meant to provide sufficient clean water to Klang residents currently facing low water reserve margins and only draws raw water from a single source i.e. Sungai Selangor. This new scheme will draw its raw water from Sungai Klang allowing for an alternative water source (in case Sungai Selangor gets polluted) and increase the water reserve margins within Klang. With the new Rasau Water Supply Scheme (Phase 1), the water reserve margin at Klang will rise to 20.9% by 2025 (vs 1.9% without it). Note that a minimum 15% water reserve margin is considered an adequate level.

Opportunity in Phase 2. Upon completion of the Phase 1 in 2025, Air Selangor would continue with Phase 2 which entails another 700MLD water treatment plant and its associated network of distribution pipelines. Should GAMUDA successfully execute the design and construction of this first water treatment plant, we believe they would stand a strong chance to secure the second one as well – since they are constructing the shared raw water pumping mains (i.e. pipeline). Moreover, the design of the first plant can be modified for the second one – allowing GAMUDA to put in very competitive bids for Phase 2.

First Malaysian contract; 5th for the year. With this RM1.97b win, GAMUDA’s FY22 YTD replenishment stands at RM11.7b – tracking in line with our RM12.5b target (company targets RM25.0b replenishment spread across FY22 and FY23). Consequently, outstanding order book is raised to RM14.4b.

Project margins to mimic historical levels. GAMUDA guides that the PBT margins for this project will range between 8 to 10% - similar to their historical construction PBT margins registered between FY18- FY21 (with exception of FY20 which was affected by pandemic). Margins for this contract are relatively protected by price escalation clauses built in for key raw materials.

No change to FY22-23E earnings post contract win as it is within our replenishment target.

Maintain OP with unchanged SoP-TP of RM4.20 anchored on: (i) 18x construction PER – a premium to contractor’s average of 11x given GAMUDA’s status as the sector leader with expertise in niche and complicated infrastructure fields, (ii) a 60% discount to properties’ RNAV which is benchmarked to developers that operate predominantly within the township space, and (iii) buyout price offered by Amanat Lebuhraya Rakyat Bhd (ALR) for its tolls concessions.

Source: Kenanga Research - 4 Jul 2022