GAMUDA’s FY23 results met our forecast but beat market expectations. Its FY23 core net profit grew 7% YoY driven largely by construction earnings from Australia. It guided for RM25b new construction job wins over the next two years, including six big ticket contracts over the next 3-15 months. We maintain our FY24F earnings, TP of RM5.45 and OUTPERFORM rating.

Its FY23 core profit of RM860.1m met our forecast but beat consensus estimates by 9%. No dividend was declared during 4QFY23 as expected as it normally pays dividend in 1Q and 3Q. Its FY23 NDPS was 50.0 sen (including a 38.0 sen special dividend), vs. 12.0 sen in FY22.

YoY, its FY23 revenue soared 68% on the back of stronger construction topline as overseas revenues jumped 4-fold with significant pick up in its projects work progress in Australia such as, Sydney Metro West (SMW), and Taiwan projects while the acquisition of DT Infrastructure (DTI) of Australia was completed on 20 Jun 2023. However, its core profit only rose 7% given a lower blended construction margin (with lower margins from overseas jobs) and in the absence of toll road profits post disposal.

QoQ. Its 4QFY23 revenue jumped 65% to RM3.42b primarily driven by SMW of which completion hit 37% vs. 27% three months ago. However, its core profit only grew 13% - we believe due to the normal quarterly fluctuation in profit recognition from construction projects.

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

1. Both its construction arm Gamuda Engineering (GE) and property unit Gamuda Land (GL) reported record breaking results in FY23 with GE registering all-time high revenue of RM6.19b (+78%) and core profit of RM500.0m (+20%), led by Australia projects while GL also achieved record presales of RM4.1b (+2%), revenue of RM2.85b (+8%) and core profit of RM314.7m (+1%), attributable to its quick turn-around project (QTP) abroad.

2. It expects explosive earnings growth in FY24 and FY25. A year ago, the company guided revenue of RM9b, RM13b and RM15b for FY23 to FY25. With the completion of DTI acquisition which could contribute new order of RM3b, the company believes it could achieve RM15b in FY24 and close to RM20b in FY25, on the back of GE securing RM25b new contracts over the next two years, including six big-ticket projects over the next 3-15 months. These could potentially be Bayan Lepas LRT, MRT3, Pan Borneo Sabah highway and one contract from Taiwan. GE’s current order book stands at RM20.6b.

3. It believes the SMW project is unlikely to be impacted by project review by the government, as when the review is completed by 4QCY23, SMW would have exceeded 50% completion, it would be extremely costly nor practical operationally to scale-down, delay or defer the project at such advanced stages.

4. It was unsuccessful in its bid for Package 1 of Melbourne Suburban Rail Loop (SRL) East. However, it will bid for Package 2 of SRL next year. The good news is it will only have one competitor this time (vs. two for Package 1) as the winner of Package 1 is barred from bidding for Package 2.

5. GAMUDA appears very confident that Bayan Lepas LRT can get off the ground within the next 3-4 months. It guided for a project cost of RM10b comprising land acquisition cost of about RM1.5b and construction cost of RM7b-RM8b. To recap, the project will be fully funded by the federal government.

6. For GL, its 4QFY23 pre-sales of RM2.2b was more than double its 9MFY23 pre-sales of RM1.9b. Meanwhile, unbilled sales now stand at RM6.7b. Vietnam QTPs are now the best-sellers, with two projects, namely Elysian and Artisan Park which collectively account for 67% of QTP sales. GL expects its revenue to double to RM6b in FY24 from RM2.8b in FY23. It has a total of eight QTPs in its current portfolio. GL is expected to add another two QTPs in 2024, and 2-3 new QTPs every year thereafter.

Forecasts. We maintain our FY24F set and introduce our FY25F numbers.

We also maintain our SoP-TP of RM5.45 that values its construction business at 18x forward PER. (see Page 3). We accord a 5% premium to its TP given a 4-star ESG rating as appraised by us (see Page 4).

We continue to like GAMUDA for: (i) it being the front-runner for Bayan Lepas LRT and 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 earnings visibility underpinned by a robust outstanding order book of RM20.6b, and (iv) its efforts to expedite growth in the renewable energy space in line with global sustainability goals. Maintain OUTPERFORM.

Risks to our call include: (i) the government cuts back on spending on public infrastructure projects on austerity drive, (ii) delays in the roll-out of key public infrastructure projects, (iii) rising input costs, and (iv) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 29 Sept 2023