GAMUDA’s 1QFY23 results met expectations. We expect the award of lumpy work packages during the FY from: (i) the MRT3; (ii) Penang South Island (PSI); and (iii) various oversea jobs, particularly those from Australia. The group is doubling down on its efforts within the renewable space by setting aside RM2b to develop 800MW of generating capacity. We maintain our forecasts, TP of RM5.15 and OUTPERFORM call.

Within expectations. GAMUDA’s 1QFY23 core net profit of RM145m (after stripping out disposal gains and discontinued operations profits derived from its tolls worth RM1.0b) came in at only 16% and 20% of our full-year forecast and the full-year consensus estimates respectively. However, we consider the results within expectations as we expect stronger quarters ahead as construction and property billings accelerate.

YoY, its 1QFY23 core net profit was down by 5% mainly due to the absence of its toll road contributions post-disposal. However, excluding toll roads, its 1QFY23 core net profit rose 26% with property profits surging 1.4x while construction profits were flattish as contributions from the MRT2 tails off. The significantly stronger property profits were due to stronger billings as construction activities resumed as well as a pickup in sales upon the economy reopening.

In terms of new construction jobs, YTD, it has secured RM1.28b which is just a fraction of our full-year assumption of RM15.5b. We are unperturbed as we expect the award of lumpy work packages during the FY from: (i) the MRT3; (ii) PSI; and (iii) oversea markets including Australia (suburban rail loop), Singapore and Taiwan. As at end- 1QFY23, its outstanding construction order book stood at RM14.8b.

In terms of property sales, it achieved RM480m in 1Q23 which appears to be lagging its full-year target as well as our assumption of RM4.5b significantly. However, again, we are unperturbed as its property sales shall pick up throughout the FY backed by new launches worth a total of RM3b (particularly in Ho Chi Minh City, Vietnam). As at end-1QFY23, its unbilled sales stood at RM5.8b.

The key takeaways from the post earnings briefing are as follows:

1. For the PSI, the new environmental impact assessment (EIA) report (submitted in Aug 2022) is currently on public display until end-Dec 2022 and GAMUDA is hopeful of a favourable outcome as soon as Jan 2023.

2. GAMUDA has very much been spared the labour shortage problem thanks to its far-sighted decision to retain most of its workers throughout the pandemic. They were kept busy with other job functions during the pandemic.

3. GAMUDA aspires to become one of the largest renewable energy producers in Malaysia. It has set aside RM2b for the development of 800MW of generating capacity from hydro, waste-to-energy and solar installations. Its internal hurdle equity IRR is low- to highteens, partially enhanced by its additional role of the EPCC contractor. Currently, it has 2MW worth of operating solar assets installed within its buildings and townships with another 1MW in the pipeline.

4. The RM200m investment in ERS Energy currently developing 39MW of solar assets (with investment of

Forecasts. We maintain our FY23F and FY24F earnings backed by unchanged construction replenishment of RM15.5b and RM12.0b respectively.

Maintain OP with unchanged SoP-TP of RM5.15 based on unchanged 18x construction PER. We continue to like GAMUDA given: (i) the good chances of it securing the MRT3; (ii) its recent job wins in in Australia, Singapore and Taiwan that speak eloquently for its competitiveness in the international market; (iii) its net cash position as of 1QFY23 providing it an edge to participate in public infrastructure projects on a PFI or deferred payment model; (iv) its strong earnings visibility underpinned by a record high outstanding order book of RM14.8b; and (v) its efforts to expedite growth in the renewable energy space in line with global sustainability goals. There is a 5% premium accorded to its TP given a 4-star ESG rating as appraised by us (see Page 5).

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

Source: Kenanga Research - 19 Dec 2022