GAMUDA is acquiring a 9.1 acres prime land in Ho Chi Minh City, Vietnam for c.RM1.49b for a high-end residential-cum-commercial property development with a total GDV of cRM5.1b. We are positive of the acquisition which will expand its presence in Vietnam. We expect this project to contribute 12.0 sen per share to our SoP valuation. Pending completion, we maintain our forecast, TP of RM5.15 and OUTPERFORM rating.

GAMUDA is acquiring 100% equity interest in Tam Luck Real Estate Corporation which solely owns a 9.1 acres mixed-use plot of land in a prime location of Thu Duc City, Ho Chi Minh City (HCMC) in Vietnam for VND7.30b (c.RM1.49b). The project land is a shovel-ready mixed use high-rise project site with all requisite planning approvals obtained that is ready for immediate development. The land acquisition is expected to be completed by 3QCY23.

We are positive over the acquisition that will expand GAMUDA’s presence in Vietnam. This is part of its expansion plan in Vietnam as well as being a part of its quick-turnaround-project strategy, which focuses on generating a continuous pipeline of high IRR assets with investment horizon of within five years. The project is located in Thu Duc City, a newly formed secondary city within the Greater HCMC, which is just 6.5km from the existing CBD with direct access to highways that connects HCMC and Hanoi, and HCMC to major industrial zones.

In addition, Metro Line 1, when completed in 4QCY23, will connect the project directly to the existing CBD. More importantly, the site is situated next to Thu Thiem (the new CBD) and thus the project is targeted at the high-end category with selling price ranging USD4,000 to USD7,000 per square meter.

The construction permit of the project, with GDV of USD1.1b (c.RM5.1b), has been approved for the development of: (i) 1,968 exclusive apartments, (ii) 23 penthouses, (iii) 51 podium shop, and, (iv) 21 shophouses. The land acquisition of VND7.2b will be funded by debt-to-equity ratio of 58:42 with the new borrowing raising its gearing to 0.19x from 0.05x which would still be well below its internal gearing limit of 0.7x. The projected equity IRR for this project is c.20%, assuming project margin of 10%, and we expect this project to contribute 12.0 sen per share to our SoP valuation of RM4.90.

Forecasts. Maintained, pending the completion of the acquisition while SoP valuation is also maintained at RM4.90.

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 TP of RM5.15 which includes a 5% premium accorded to its TP given a 4-star ESG rating as appraised by us (see Page 5). 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 - 21 Jul 2023