GAMUDA and its JV partner Ferrovial Construction have been appointed for the 2nd time as Early Contractor Involvement (ECI) partners for a pumped hydro project in Australia. With these two pumped hydro projects and a metro project - SLR East-Linewide, its potential order book in Australia this year is RM20b. We remain optimistic of GAMUDA's job prospects, and the recent share price weakness presents a buying opportunity. We reaffirm our OP rating with an unchanged TP of RM5.46.

2nd appointment as ECI partners for Australian Pumped Hydro project. Last Friday, GAMUDA, through its 50:50 JV with Ferrovial Construction, was selected as the ECI partners for their second pumped hydro project in Australia. The JV has signed an ECI agreement with Capricornia Energy Hub (CEH) for the Capricornia Pumped Hydroelectric Storage System (PHES) in Central Queensland.

CEH is owned by Copenhagen Infrastructure Partners, one of the world's largest clean energy investors.

The ECI phase will take approximately five months to develop an EPC contract to deliver the PHES. The project, which includes the PHES and the transmission project, will have a stored capacity of up to 750MW for around 16 hours over a 24-hour period. It is located 80km west of Mackay and 10km northwest of Eungella. According to the Queensland Government's website, the total project investment is AUD2.87b (equivalent to RM8b), with construction set to start in 2026.

So far, this is the 3rd project for the GAMUDA-Ferrovial JV. The first contract was secured in June 2022 for the AUD1.35b main package of works on the Coffs Harbour Bypass. They were also appointed as ECI partners for the Oven Mountain Pumped Hydro project in New South Wales in November 2024.

Three major Australian potential projects in 2025. In addition to the abovementioned PHES projects, a consortium which comprises GAMUDA has also been shortlisted (as one of the two shortlisted) for the Suburban Rail Loop (SRL) East - Linewide in Melbourne.

GAMUDA has guided a total potential order book of RM20b from these three projects. Other projects in the pipeline are Penang LRT Package 2 and 3, Sabah's water treatment plant, and several data centre awards. GAMUDA also maintains its end-CY25 outstanding order book target of RM40b-RM45b which appears attainable.

Opportunity amid recent sell-down. The recent sell-down on construction stocks, triggered by concerns over the USA's AI chips restriction, presents a good opportunity to accumulate GAMUDA. We believe the earnings impact, in the worst case, will not be material as data centre jobs only account for 7% of GAMUDA's current outstanding order book of RM37.0b. Our FY25-FY26 new job wins assumption of RM17b-RM20b includes RM3b each from data centre projects.

Forecasts. Maintained.

Valuations. We maintain our SoP-based TP of RM5.46 (see Page 3) that values its construction business at an unchanged 22x FY26F PER and includes a 5% premium given its 4-star ESG rating as appraised by us (see Page 6).

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 - 27 Jan 2025