GAMUDA, together with its JV partners, has secured a design and build MRT contract in New Taipei City, Taiwan. It expects to recognise RM3.2b in revenue with a PBT margin of 8% from this project based on its 75% stake with a future award potential for additional works worth RM8.1b. We are positive on this win as it brings its outstanding order book to RM28.7b, nearing its end- CY24 target of RM30b─RM35b. We maintain OUTPERFORM rating at a TP of RM9.20.

Won RM3.2b design and build MRT contract in Taiwan. Yesterday, GAMUDA announced that the 75:15:10 JV between GAMUDA, MiTAC Information Technology Corp and Dong Pi Co Ltd was awarded the design and build contract for the Xizhi Donghu MRT construction project in Taiwan by the Department of Rapid Transit System, New Taipei City Government, worth NTD 31.96b (c.RM4.3b). The expected revenue to GAMUDA is NTD23.97b (c.RM3.2b) based on its 75% stake in the JV. The project is expected to start this month and span over seven years. Additionally, the JV is obligated to undertake an already determined additional works value of NTD80b (c.RM10.8b) with an expected revenue of NTD60b (c.RM8.1b) to GAMUDA based on its 75% stake in the JV.

The Xizhi Donghu MRT project covers a 5.78km railway track, system works and six elevated stations within Taipei Neihu District and New Taipei City Xizhi District. The NTD80b additional works include the Xizhi Donghu Line Maintenance Depot, as well as system and track works for two extension lines, i.e., the Keelung Line MRT and Minsheng Line MRT. The finalisation of the additional works will occur upon instruction from the Taipei City government and is expected to take place before the end of the Xizhi Donghu MRT contract.

Second job secured in FY25. We are positive on this contract win, which is part of the RM15b target of contract wins set for the six-month period starting in Sep 2024. This is the second job win for FY25, bringing its YTD contract wins to RM3.93b and increasing the outstanding order book by 13% to RM28.7b against its targeted outstanding order book of RM30b-RM35b by end-CY24. We have assumed new job wins of RM14.5b in FY25, which is relatively conservative compared to management's aggressive target of RM30b.

The guided PBT margin for this project is 8%.

Forecasts. Maintained with new job win assumption of RM14.5b and RM15.0b for FY25 and FY26, respectively.

Valuations. We maintain our SoP-based TP of RM9.20 (see Page 3) that values its construction business at 22x FY26F PER and includes a 5% premium given its 4-star ESG rating as appraised by us (see Pages 6).

Investment case. We like GAMUDA for: (i) being in the driver's seat for the Mutiara Line of the Penang LRT, (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 RM28.7b (excluding Upper Padas Hydro and Penang LRT), 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 change in government policies towards foreign businesses and forex, and (iv) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 23 Oct 2024