KEY INVESTMENT HIGHLIGHTS

• SRS Consortium (60% Gamuda) officially awarded RM8.32b Penang LRT contract
• Construction to take 6 years; 23.7km elevated viaduct, 19 elevated stations, 1 provisional station and 1 depot
• Record high order book at RM37.0b, on track for CY25 target of RM40b to RM45b
• Maintain BUY with a unchanged TP of RM5.42

Officially appointed for Penang LRT. Construction works for the long- awaited Penang LRT, or formally known as the Penang Mutiara Line, is set to begin following the ground-breaking ceremony by Prime Minister YAB Dato' Seri Anwar Ibrahim last Saturday. This was followed by formalisation of the appointment of SRS Consortium Sdn Bhd as the main contractor for the RM8.32b Civil Main Contract 1 (Komtar to Silicon Island alignment). SRS Consortium is a 60%-subsidiary of Gamuda.

Details of the project. The scope of works will include a 23.7km elevated viaduct from Komtar to Island A of the Penang South Reclamation, also known as the Silicon Island. There will be a total of 19 elevated stations along the route and one provisional station on Island A. There will also be a depot on Island A for light and heavy maintenance.

The project will take 72 months or six years to complete, by 2031. Works for the provisional station only involves station shell works with future construction to be decided later.

The numbers. In our Apr-24 thematic report "All systems go for the Pearl of the Orient", we estimated that the size may come up to about RM8.23b, based on RM350.0m per km. The official contract value for the first segment of RM8.32b is in line with our expectations. Based on Gamuda's 60% stake in SRS Consortium, its share of the pie is RM4.99b. Management's expectation for pretax margins is 8%.

RM40b to RM45b order book by end 2025. Gamuda's outstanding order book currently stands at a high of RM37.0b. well within management's target RM40b to RM45b target by end CY2025, after taking into account an expected burn rate of RM12b to RM13b annually. Upcoming project awards that are expected to provide an extra boost to Gamuda's already bulging order book include a water supply scheme in Sabah, and the potential conversion of several renewable energy early contractor involvement (ECI) into EPCC contracts in Australia and data centre jobs.

Earnings estimates. We are making no changes to our earnings estimates as the Penang LRT win is expected.

Target price. We are also maintaining our TP at RM5.42, pegging the group's FY26F EPS of 25.8 sen to a PER of 21x, based on +2SD above its long-term mean, which we believe is justifiable given its growing prospects in the construction space with an all-time high outstanding orderbook and its recent inclusion into the FBM KLCI.

More to expect from Penang LRT? Now that the main package has been awarded, all eyes are now on the two remaining packages - the above sea alignment from Komtar to Penang Sentral and the systems package. The latter was recently opened for bidding in Nov-24 while the former can be expected in Jul-25. As these two packages are open tenders, technically, there are no obstacles for Gamuda to secure further wins, provided that its proposals are the most favourable.

We believe interested contractors, specifically for above sea alignment which we have estimated to come up to about RM1.93b, are the likes of IJM Corp (BUY, TP: RM3.89), Sunway Construction (NEUTRAL, TP: RM4.46) and MRCB (BUY, TP: RM0.67). Further wins from the Penang LRT would be an upside surprise for Gamuda.

Maintain BUY. We are positive on the official contract award of the main Penang LRT package to Gamuda, which marks the certainty of the mega project moving forward and in tune with the timeline set by the Government. Gamuda remains our favourite for the construction sector, backed by its successful overseas expansion plan; its consistency in clinching sizeable jobs and it being a front runner for most mega projects in Malaysia. All in, we are maintaining our BUY recommendation on Gamuda.

Source: MIDF Research - 14 Jan 2025