After a long delay, MRT Corp has finally firmed up contract value at RM8.32b for Penang LRT Mutiara Line Package 1 with the project's main contractor, GAMUDA's 60%-owned SRS Consortium (SRS). SRS is expected to bid for the remaining two packages. We are positive with this contract win, in which GAMUDA will recognise 60% or RM5.0b, as it raised YTD job wins for FY25 to RM13.76b and outstanding order book to a record RM37.0b. We stay optimistic on GAMUDA on its job prospects and reaffirm our OP rating with a new TP of RM5.46.

Penang LRT is here, finally. Yesterday, GAMUDA announced that its 60%-owned SRS Consortium Sdn Bhd (SRS) has been awarded the Penang LRT Mutiara Line Project's Package 1 from MRT Corp for RM8.32b. This job package involves civil work with 23.7km railway viaduct from Komtar to Island A of the Penang South Reclamation project, and 19 elevated stations, one provisional station in Island A and one depot. PM Datuk Seri Anwar Ibrahim officiated the groundbreaking ceremony last Saturday (11 Jan 2025), and the project duration is over 72 months. The other shareholders of SRS are Loh Phoy Yen Holdings Sdn Bhd and Ideal Property Development Sdn Bhd which each own 20% stake in SRS.

According to Transport Minister, the tender for the Package 2, which runs from the Macallum Station in George Town to the Penang Sentral Station in Seberang Perai, is expected to be called in July with the award to be announced by early next year. The tender process for Package 3, which is the turnkey system and rolling stock contract, is ongoing with the final pitch dateline on 14 April 2025.

Record outstanding order book of RM37.0b. While this contract award is highly expected and long overdue, we are positive as SRS is able to start construction immediately and hence job claim. In addition, Transport Minister mentioned that he did not discount the possibility of SRS bidding for the remaining two packages. With this contract win which is worth RM5.0b for 60% stake, GAMUDA has secured a total of RM13.76b new job YTD in FY25 (FYE: July) against our FY25 new job wins assumption of RM14.5b, and elevated its outstanding order book to a new high of RM37.0b. This project is expected to fetch 8% pre-tax profit margin.

More contracts in the pipeline, such as Sabah's water treatment plant, several data centre awards and projects in Australia. GAMUDA also maintains its end-CY25 outstanding order book target of RM40b- RM45b.

Forecasts. We have fine-tuned our estimates as we raised our FY25 and FY26 job win assumptions to RM17.0b and RM20.0b from RM14.5b and RM17.0b previously, and construction revenue assumption to RM11.5b and RM15.0b from RM10.0b and RM11.5b, respectively. However, we toned down our construction operating margin to 8.3% and 8.6%, respectively, as our previous assumption of 9.5% and 10.0% were too optimistic. As such, our FY25-F26 estimates are revised upward slightly by 1% each.

Valuations. Post earnings revision, our SoP-based TP is raised slightly to RM5.46 (see Page 3) from RM5.40, that values its construction business at 22x FY26F PER and includes a 5% premium given our 4-star ESG rating (see Page 6). We have assumed a RM3.0b data centre job wins in FY25. Given the strong data centre job pipeline, should GAMUDA secure 50% higher data centre jobs to RM4.5b, GAMUDA's TP would further increase to RM6.08.

Investment case. We continue to like GAMUDA for: (i) being in the driver's seat for the Mutiara Line for the Penang LRT, (ii) its ability to secure new jobs in overseas markets, (iii) its solid war chest after the disposal of its toll highways, (iv) its strong earnings visibility underpinned by a record outstanding order book of RM37.0b, and (v) its inroads into the renewable energy space. Maintain OUTPERFORM.

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

Source: Kenanga Research - 14 Jan 2025