GAMUDA’s 1HFY23 results met our expectation but beat consensus’. Having secured RM8.5b new jobs thus far in FY23, it is not slowing down, eyeing more contracts such as work packages from MRT3 (civil and system), Penang South Island (PSI) and overseas markets, particularly Australia. We maintain our forecasts, TP of RM5.15 and OUTPERFORM call.

A stronger 2HFY23. 1HFY23 core net profit of RM340m (after stripping out disposal gains and discontinued operating profits of its toll highways amounting to RM1.0b) came in at 38% and 48% of our full year forecast and the full-year consensus estimate, respectively. Though beating market expectation, we consider the results in line as we anticipate a bumper 2HFY23 as progress billings from its Australian projects are expected to move up the S-curve.

YoY, 1HFY23 core net profit was up by 3% despite the absence of toll highways operations, thanks to stronger construction and property contributions from overseas.

YTD, it has secured RM8.5b of construction contracts, and is on track to meet our full-year assumption of RM15.5b. It could bag more jobs before FY23 is out, including from: (i) MRT3, (ii) PSI, and (iii) overseas markets such as Australia (Suburban Rail Loop), Singapore and Taiwan. As at end-2QFY23, its outstanding construction order book stood at RM20.5b.

In terms of property sales, it achieved RM1.0b in 1HFY23 which appears to be lagging its full-year target as well as our assumption of RM4.5b significantly. However, we are unperturbed as we anticipate its property sales to pick up in 2HFY23, 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 RM5.4b. The key takeaways from the post earnings briefing are as follows:

1. GAMUDA is confident of securing the MRT3 tunnelling package with its highly competitive bid. While the government intends to reduce the project cost by 10% to RM45b, GAMUDA believes the civil packages will be left intact as the savings are more likely to come from lower project management fees and land acquisition cost.

2. Apart from the tunnelling package, it is also eyeing the system package for MRT3 worth RM5b-RM7b. It believes it stands a good chance given that it is the only local company with experience in executing system integration, ensuring timely delivery of the entire rail project i.e. MRT1 and MRT2 vs. the local competitors that only procures the system.

3. GAMUDA reiterated its ambition to own large non-solar renewable energy assets capable of generating 800MW of green energy. Meanwhile, GAMUDA has submitted its bid for a slice of action in the government’s Corporate Green Power Programme initiative to provide green electricity supply to corporations through virtual power purchase agreements.

4. For the new environmental impact assessment (EIA) report for PSI submitted in Aug 2022, GAMUDA now guided for a decision from the authority by April 2023 (from Jan 2023 as previously guided).

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

We continue to like GAMUDA for: (i) it being the front-runner for the tunnelling job for MRT3, (ii) its job wins in in Australia and Singapore that speak eloquently for its competitiveness in the international market, (iii) its strong balance sheet after the disposal of its toll highways, (iv) its strong earnings visibility underpinned by a robust outstanding order book of RM20.5b, 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, (ii) delays in the roll-out of key public infrastructure projects in Malaysia such as MRT3, (iii) delays in PFI project due to funding/environmental issues.

Source: Kenanga Research - 24 Mar 2023