GAMUDA has been awarded a civil engineering work package for the Kaohsiung MRT Yellow Line in Taiwan worth RM3.03b. This is the first out of the gate of RM25b job wins that GAMUDA guided for over the next two years. The job has boosted its outstanding order book by 15% to RM23.6b. We maintain our forecasts, TP of RM5.45 and OUTPERFORM rating.

GAMUDA, via an 88:12 JV with Asia World Engineering & Construction Co (GAMUDA-AWEC JV), has been awarded Package YC01 of the Kaohsiung MRT Metropolitan Line (Yellow Line) worth NTD23.40b (c.RM3.45b) by the Taiwan Kaohsiung City Government’s Mass Rapid Transit Bureau. GAMUDA’s 88% share of the contract translates to NTD20.59b (c.RM3.03b)

The project is a 4.4km railway track located within NiaoSong District, comprising 3.5km underground twin bored tunnels (with three underground stations) and 0.9km of elevated tracks (with one elevated station). The project period is 107 months or nine years.

This is the second railway project secured by GAMUDA in Taiwan in recent years. Recall, GAMUDA, via a 60:40 with the same partner, secured the TaoYuan City Underground Railway Project Package CJ18 worth NTD14.5b (cRM2.13b) in Oct 2022 whereby Gamuda’s job portion was NTD8.7b or c.RM1.28b.

This latest contract is the first job win for GAMUDA in FY24F (vs. our full-year assumption of RM13b), boosting its outstanding order book by 15% to RM23.6b from RM20.6b.

Forecasts. Maintained

Outlook. We expect a significant revitalisation of the construction sector in 2024 backed by: (i) the roll-out of the RM45b MRT3 project, RM9.5b Bayan Lepas LRT Line and six flood mitigation projects reportedly to be worth RM13b, and (ii) the vibrant private sector construction market, underpinned by massive investment in new semiconductor foundries and data centres. GAMUDA has guided the engineering unit securing RM25b new contracts over FY24 and FY25, including six big-ticket projects over the next 15 months. Other than the latest Taiwanese MRT job, the rest could potentially comprise the Bayan Lepas LRT Line, MRT3, Pan Borneo Sabah highway and one contract from Australia.

We continue to like GAMUDA for: (i) being the front-runner for the tunnelling job for the MRT3, (ii) its ability to secure new jobs in overseas markets, (iii) its strong war chest after the disposal of its toll highways, (iv) its strong earnings visibility underpinned by a record outstanding order book of RM23.6b, and (v) its inroads into the renewable energy space.

We maintain our TP of RM5.45 which includes a 5% premium given a 4-star ESG rating as appraised by us (see Pages 3 and 5). Maintain OUTPERFORM.

Risks to our call include: (i) delays in the roll-out of key public infrastructure projects in Malaysia such as the MRT3, (ii) rising input costs and labour shortage; (iii) risks associated with operations in overseas markets such as the change in government policies towards foreign businesses and forex, and (iv) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 26 Oct 2023