GAMUDA is acquiring 532 acres of land in Rawang for RM360m cash, earmarked for a mixed development worth RM3.3bn in GDV spread over ten years. We are mildly positive as the land will enable GAMUDA to broaden its product offerings in Rawang to include affordable landed houses. BUY with a TP of RM5.15 based on 18x PER for its construction segment. We continue to like GAMUDA given: (i) the good chances of it securing the MRT3, (ii) its recent job wins in Australia, Singapore and Taiwan, (iii) low gearing position providing an edge to participate in public infrastructure projects on a PFI or deferred payment model, (iv) its strong earnings visibility underpinned by a record high order book of RM16bn, and (v) efforts to expedite growth in the renewable energy space.

GAMUDA is acquiring eight adjoining parcels of freehold land in Kundang Jaya, Rawang, with a total area of 532 acres for RM360m translating to about RM15.50 psf. The land is earmarked for a mixed development (mainly landed residentials) and is located close to GAMUDA’s ongoing 810- acre Gamuda Gardens development. Gamuda Gardens still have 620 acres undeveloped with a remaining GDV of RM7.8bn, comprising of higher-end landed houses given its more strategic location. Therefore, we are mildly positive on this latest acquisition which would enhance the product offerings of Gamuda within the vicinity despite little accretion to earnings in the immediate term.

We believe the purchase price is fair from: (i) a land-to-GDV perspective, and (ii) price per square feet standpoint. Compared against typical land/GDV transactions of c.15%, these new lands implied land-to-GDV of 11% is reasonable given its larger plot size. Meanwhile, the RM15.50 psf price tag is also at a slight discount against SCIENTX’s RM17 psf purchase price for its 166.5 acres Rawang land back in 2019.

With a strengthened balance sheet due to its toll highways disposals, Gamuda is currently embarking on an acquisition phase to replace the lost toll contributions and to enhance its returns to equity. Post-acquisition of these new lands, Gamuda’s net gearing will increase slightly to 0.16x (from 0.13x), still well below its self-imposed net gearing ceiling cap of 0.70x.

Source: Rakuten Research - 4 Jan 2023