GAMUDA is acquiring 532 acres of land in Rawang for RM360m cash, earmarked for a mixed development worth RM3.3b in GDV spread over ten years. The price tag of about RM15.50 per sq ft (psf) is at a slight discount to a recent transaction in the vicinity. We are mildly positive as the land will enable GAMUDA to broaden its product offerings in Rawang to include affordable landed houses. We maintain our forecasts, TP of RM5.15 and OUTPERFORM call.

GAMUDA is acquiring eight adjoining parcels of freehold land in Kundang Jaya, Rawang, with a total area of 532 acres for RM360m translating to about RM15.50 psf. The lands in total has a tentative GDV of RM3.3b spanning over a 10-year horizon, earmarked for a mixed development (mainly landed residentials) and is located close to GAMUDA’s ongoing 810-acre Gamuda Gardens development.

While Gamuda Gardens still have 620 undeveloped acreages with a remaining GDV of RM7.8b, we highlight that these new lands would be focusing more on the affordable bread-and-butter landed houses versus Gamuda Garden’s higher-end landed houses given the latter’s more strategic location. Therefore, we are mildly positive on the acquisition which would enhance the product offerings of Gamuda within the vicinity despite little accretion to earnings in the immediate term.

Meanwhile, we find the purchase price fair from: (i) a land-to-GDV perspective, and (ii) price per square feet standpoint. Compared against typical land/GDV transactions of c.15%, these new lands implied land-to-GDV of 11% is reasonable given its larger plot size. Meanwhile, the RM15.50 psf price tag is also at a slight discount against SCIENTX’s RM17 psf purchase price for its 166.5 acres Rawang land back in 2019.

With a strengthened balance sheet fresh off its toll highways disposals, Gamuda is currently embarking on an acquisition phase to replace the lost toll contributions and to enhance its returns to equity. Post-acquisition of these new lands, Gamuda’s net gearing will increase slightly to 0.16x (from 0.13x), still well below its self-imposed net gearing ceiling cap of 0.70x.

No change to FY23-24F earnings based on unchanged FY23F sales target of RM4.5b as this latest land acquisition would not contribute to the forecast periods.

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 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 RM16b, 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 6).

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 PFI project due to funding/environmental issues.

Source: Kenanga Research - 4 Jan 2023