GAMUDA is acquiring Downer Transport Projects (DTP) for an enterprise value of AUD212m (or RM636m). The Australian civil contractor specialising in rail projects has an outstanding order book of c.AUD2b (RM6b). We are positive over the acquisition that will expand GAMUDA’s presence in Australia. After accruing DTP’s order book, GAMUDA’s total job wins still fall within our assumptions. As such, we maintain our forecasts, TP of RM5.15 and OUTPERFORM call.

GAMUDA is acquiring DTP, the construction business of Australian Securities Exchange-listed Downer EDI, for an enterprise value of AUD212m (or RM636m). DTP provides civil construction services, specialising in rail projects with a staff strength of about 1,100 across five states in Australia, namely New South Wales, Victoria, Queensland, South Australia and Western Australia. Its current order book stands at c.AUD2b (RM6b). The deal is expected to be completed by 2QCY23.

Gamuda hosted a briefing over this acquisition and the key takeaways are as follows:

1. The price tag of USD212m implies a historical EV/EBITDA multiple of 4x and PER of c.7.5x. This is lower than the EV/EBITDA range of 5-7x observed in similar transactions recently. Gamuda views the acquisition as a good deal as the vendor perceives DTP as non-core business and is seeking an exit.

2. DTP’s focus is on small to medium-sized projects with contract value of

3. GEA could partner DTP, instead of a third-part tier-1 Australian contractor, in bidding for mega Australian projects. GAMUDA has spotted over AUD8.3b worth of job opportunities the two units could work as a JV over the next two years.

4. With DTP coming onboard, GAMUDA revised up its construction revenue projection by between 17% to 39% for FY24 to FY26 (see Page 2).

Overall, we are positive over the acquisition which allows GAMUDA to: (i) tap into DTI’s client base, (ii) immediately accrue AUD2b worth of contracts (at DTI), (iii) provide synergies to GEA, and (iv) expand its presence in Australia, a country that is investing heavily in infrastructure developments. Meanwhile, post the acquisition, GAMUDA’s net gearing will inch up slightly to 0.2x (from 0.16x) that is still highly manageable (GAMUDA has a self-imposed net gearing ceiling cap of 0.70x).

We factor in DTP’s existing AUD2b (or RM6b) contracts into GAMUDA’s order book bringing YTD replenishment to RM8.5b, closer to our RM15.5b target. Consequently, GAMUDA’s outstanding order book is raised by 38% to RM22b.

Forecasts. We liken GAMUDA’s latest move as an indirect way of securing new jobs. After accruing DTP’s order book, GAMUDA’s total job wins still fall within our job win assumptions of RM15.5-12.0b in FY23-24F. As such, we maintain our earnings forecasts.

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 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 RM22b, and (v) its efforts to expedite growth in the renewable energy space in line with global sustainability goals.

We maintain our SoP-TP of RM5.15 that value its construction business at 18x forward PER. There is a 5% premium accorded to its TP given a 4-star ESG rating as appraised by us (see Page 6). Maintain OUTPERFORM.

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 - 23 Feb 2023