GAMUDA’s 1QFY24 results met expectations. Its 1QFY24 core profit grew 35% YoY largely driven by construction earnings from Australia. Separately, it has bagged a RM1.8b MRT civil construction contract in Singapore. It guided for Bayan Lepas LRT to get off the ground “within the next 3-4 months” while the status of MRT3 is “unclear”. We maintain our forecasts, TP of RM5.45 and OUTPERFORM rating.

Its 1QFY24 core net profit of RM195.0m came in at only 18% and 19% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect stronger earnings in coming quarters. It declared a first interim NDPS of 6.0 sen in 1QFY24, against a total of 44.0 sen NDPS (inclusive of 38.0 sen special dividend) paid in 1QFY23.

YoY, its 1QFY24 revenue more than doubled driven largely by construction billings from Sydney Metro West (SMW) and maiden contribution from Australian unit DT Infrastructure. However, its core profit only rose 35% to RM195.0m due to a lower blended construction margin, with lower margins from overseas jobs.

A lower PBT margin of 9% (vs. 14% a year ago) was attributable to: (i) revenue-mix that was skewed heavily towards low-margin overseas projects (84% vs. 16% of local projects), (ii) overseas projects being in initial stages of implementation with limited profit recognition, and (iii) the high base in 1QFY23 due to lumpy profits from the completion of MRT2.

QoQ. Its 1QFY24 revenue fell 18% on lower top line contributions from both construction (-12%) as well as property (-36%) due to normal quarterly fluctuation in billings. Its core profit declined 23% for the same reason.

Separately, it announced a contract win, i.e. a SGD509.6m (c.RM1.77b) Singapore MRT contract for West Coast station and two tunnels (approximately 1.9km) under the Cross Island Line Phase 2 from the Land Transport Authority of Singapore. This is the third of the six sizeable projects GAMUDA had said it could win in FY24 and FY25, which it delivered accordingly. Recall, it also bagged a RM3.03b Taiwanese MRT job and a hydropower plant contract in Sabah worth c.RM2b in Oct 2023. The latest job contract has boosted its YTD FY24 job wins to RM6.5b (on track to meet our full-year job win assumption of RM13b) and its outstanding construction orderbook to RM27.8b.

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

1. It guided for the Bayan Lepas LRT project to get off the ground within the next 3-4 months. It is in “advanced” discussions with the government to finalise the implementation model of the project. It guided for a project cost of RM10b comprising land acquisition cost of about RM1.5b and construction cost of RM7b-RM8b. On a less encouraging note, it said that the status of MRT3 is still “unclear” while the validity of tenders has been extended for a fourth time to end-Mar 2024.

2. It guided for an 8% PBT margin for the new Singapore MRT contract, which is in-line with that of Singapore projects postCOVID from 5% previously. It raised its guidance for margins for its Australian projects to above 8% (vs. 6%-8% previously). Our forecasts assume about 9%.

3. As of end-Oct 2023, GAMUDA has an outstanding orderbook of RM4.7b for SMW projects, which included a new RM1.2b variation order with 39% completion status. Meanwhile in Melbourne, GAMUDA has been shortlisted for another highway project (undisclosed name and value due to sensitivity)

4. For the property arm – Gamuda Land, its 1QFY24 revenue fell 9% largely led by overseas revenue (-24%) as Celadon City (HCMC, Vietnam project) reached its tail-end which was mitigated by local revenue (+12%). Its 1QFY24 property sales was RM454m (vs. RM480m in 1QFY23) and it expects stronger sales in the coming quarters, to be underpinned by stronger domestic sales (including the maiden launch of Gamuda Park) and overseas quick-turnaround projects (QTPs). It has a total of eight QTPs in its current portfolio. It is expected to add another two QTPs in 2024, and 2-3 new QTPs every year thereafter. Meanwhile, unbilled sales now stand at RM6.7b.

Forecasts. Maintained.

We maintain our SoP-based TP of RM5.45 that values its construction business at 18x forward PER and includes a 5% premium given a 4-star ESG rating as appraised by us (see Pages 3, 4 and 6).

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 RM27.8 b, and (v) its inroads into the renewable energy space. 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 - 7 Dec 2023