GAMUDA, via a 45%-owned JV, is developing a 187.5MW hydropower plant in Tenom, Sabah, on a private finance initiative (PFI) basis at c.RM4b. We assume the project will generate c.RM2b worth of civil works to GAMUDA, boosting its outstanding order book to RM25.6b. We maintain our forecasts, TP of RM5.45 and OUTPERFORM rating.

GAMUDA, via a 45:40:15 JV called UPP Holdings Sdn Bhd (UPP) with Sabah Energy Corporation Sdn Bhd (a Sabah state government-linked company) and Kerjaya Kagum Hitech JV Sdn Bhd (a power plant construction company) (see chart on the next page), is developing the 187.5MW Upper Padas Hydroelectric Power Plant in Tenom, Sabah, on a PFI basis at c.RM4b. The off-taker of the power generated is Sabah Electricity Sdn Bhd. The construction period is five years while the initial operating period is 40 years.

We understand that civil works estimated at c.RM3b will be carried out via a JV between GAMUDA and Kerjaya Kagum. The JV intends to fulfil the 40% local participation requirement by offering sub-contract works to Sabah-based subcontractors.

This is the second of the six big-ticket projects GAMUDA expects to win by Apr 2025. This is also the second key job GAMUDA has secured in FY24, boosting its FY24F YTD total job wins to RM5b (on track to meet our FY24F full-year job win assumption of RM13b) and its outstanding construction order book to RM25.6b.

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 for RM25b new contracts over FY24 and FY25, including six big-ticket projects by Apr 2025. Other than the Taiwanese MRT job (won last week) and this latest hydropower plant, 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 RM25.6b, 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 - 31 Oct 2023