GAMUDA has won its first contract of the year, in Taiwan to construct an underground railway track and station. We are positive on the win which makes up 8% of our FY23F replenishment target and lifts its outstanding order book to a record high of RM15.3b. The contract spanning over eight years is expected to fetch a PBT margin of 8-10%. We maintain our earnings forecasts and keep OP with an unchanged SoP-TP of RM5.15.

First contract in FY23. GAMUDA, via a 60:40 JV with Taiwan based Asia World Engineering & Construction Co., has secured a RM2.13b contract from Taiwan’s Transport Ministry to construct an underground railway track and station at PingZhen District, Taoyuan, Taiwan (Gamuda’s effective share in the contract is RM1.28b).

The objective of this 8-year long project is to shift the existing above ground train alignment underground given the scarcity of land within the vicinity. It entails the construction of: (i) a 3.7km underground twin bound railway track alongside a new underground station, and (ii) a temporary above ground station, as well as some infrastructure relocation works.

This new contract reaffirms our belief in Gamuda’s strong construction capabilities in the international space. Hence, we are positive on the new win which made up 8% of our and company’s FY23F order book replenishment of RM15.5b which lifts its outstanding order book by 9% to a record high of RM15.3b. The guided PBT margin of 8-10% is also in line with our assumption of 9%.

No change to FY23-23F earnings forecasts as this new win is well within our replenishment assumption.

Maintain OP with unchanged SoP-TP of RM5.15 based on 18x PER for its construction segment. We continue to like GAMUDA given: (i) the good chances of it garnering a significant slice of action in MRT3, (ii) its contract wins in Australia, Singapore and Taiwan that speak eloquently for its competitiveness in the international market, (iii) the lumpy proceeds from the disposal of its toll assets, putting it in a strong position to participate in public infrastructure projects on a PFI or deferred payment model, and giving out a special dividend, and (iv) its strong earnings visibility underpinned by record high outstanding orderbook of RM15.3b. There is a 5% premium accorded to its TP given a 4-star ESG rating as appraised by us.

Risks to our call include: (i) governments cutting back on public infrastructure spending on austerity drive, (ii) delays in the rollout of key public infrastructure projects in Malaysia such as MRT3, (iii) delays in the PSI project due to funding/environmental issues.

Source: Kenanga Research - 28 Oct 2022