GAMUDA’s 9MFY23 results met our forecast but beat market expectation. It also announced winning a RM3.5b land reclamation contract from Penang South Island (PSI) that boosted its FY23 YTD jobs wins to RM12b. Going forth, it is eyeing more contracts from MRT3, Penang LRT and Australia. We maintain our forecasts, TP of RM5.15 and OUTPERFORM call.

9MFY23 core profit of RM608.4m came in at only 68% of our full-year forecast but we consider the results within our expectation as we expect a bumper 4Q thanks to: (i) accelerated billings from its projects in Australia, particularly, Sydney Metro West (SMW), and (ii) the consolidation of earnings of Downer Transportation Infrastructure (DTI) with an order book of RM4.5b post-acquisition. At 83% of the full-year consensus estimate, we regard the results as above market expectation.

It declared a second interim NDPS of 6.0 sen, bringing YTD NDPS to 50.0 sen (inclusive of 38.0 sen special dividend declared in 1QFY23), which is in-line with our projection, against the 12.0 sen paid a year ago.

YoY. 9MFY23 revenue jumped 58% on the back of stronger construction topline which doubled up over the year due to higher progress billings from projects in Australia and Taiwan. Consequently, core net profit rose 10% to RM608.4m led by the said construction earnings in the absence of toll highways operations.

QoQ. 3QFY23 revenue rose 43% primarily driven by SMW as it has completed 27% of its work progress from 15% previously. During the quarter, overseas revenue (67% of total) overtook domestic revenue (33%) for the first time due to strong contributions from projects in Australia while its projects in Malaysia were mostly at the tail-end (with the completion of MRT2 in Mar 2023). Meanwhile, core net profit grew 15% sequentially to RM223.4m which was led by property earnings (+82%).

Separately, it announced winning the RM3.5b land reclamation contract for Phase 1 of PSI which is now officially known as Silicon Island. With this, it has secured RM12.0b of construction contracts YTD in FY23, against our FY23 assumption of RM15.5b. As at end-3QFY23, outstanding construction order book stood at RM21.5b.

Its property arm Gamuda Land reported RM0.9b worth of sales in 3QFY23, tallying 9MFY23 sales to RM1.9b, against our FY23 property sales assumption of RM4.5b. Property sales are expected to pick up further in 4QFY23, backed by new launches worth a total of RM3b in 2HFY23 (particularly in Ho Chi Minh City, Vietnam). As at end-3QFY23, unbilled sales stood at RM5.7b, up from RM5.4b three month ago.

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

1. A fixed lump-sum turnkey contract worth RM3.72b (PSI’s Phase 1 reclamation works) was awarded to SRS TC Sdn Bhd (100%- owned by GAMUDA). The turnkey contractor has simultaneously awarded the work to Gamuda Engineering Sdn Bhd (100%-owned by GAMUDA) with a fixed lump sum of RM3.5b. (see Page 3). The land reclamation is a 5-year contract with expected pretax margin of 15%.

2. It has set an annual job win target of RM12b-RM13b, vs. RM24.6b worth of jobs secured in FY22 and FY23 combined. For FY24, it is targeting to secure AUD3b worth of new contracts in Australia, while locally it is eyeing MRT3 and Penang LRT. For MRT3, it is eyeing the system package worth RM5b-RM7b with margins similar to MRT2 but better than MRT1. GAMUDA 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 MRT1 and MRT2 previously.

3. In terms of outstanding construction order book, it has set a target of RM25b in the next 2-3 years (vs. RM20b currently) with key focus in Australia and Taiwan. Meanwhile, for property sales, it targets to double this to RM8b during the same period from RM4b currently.

Forecasts. Maintained.

We continue to like GAMUDA for: (i) it being the front-runner for the tunnelling job for MRT3, (ii) its job wins 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 RM21.5b, 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 - 23 Jun 2023