• Maintain NEUTRAL and TP of MYR3.62, 2% upside with c.3% FY22F (Jul) yield. On 1 Jul, Gamuda announced that it secured a project for the proposed development of Sungai Rasau Water Supply Scheme (Stage 1) - Package 1: Design and Build of Proposed Rasau Intake, Raw Water Pumping Mains, Water Treatment Plant and Associated Works (abbreviated to Package 1) from Pengurusan Air Selangor. The award of the contract is later than what Pengurusan Air Selangor guided earlier, which was supposed to be in 1QCY22.

• Impact on orderbook. The contract value for Package 1 is MYR2bn, with Gamuda taking the role as the main contractor, is for the period of 15 Jul 2022 to 30 Jun 2025. As a result, the fourth contract secured in FY22 brings Gamuda’s YTD new job wins to c.MYR11.6bn, with an outstanding orderbook of MYR14.4bn. The project involves designing and building: i) an intake structure of a 1,400m-litres-a-day (MLD) capacity to draw augmented raw water from the ex-mining ponds at Taman Putra Permai, Puchong, ii) a 700 MLD of water treatment plant near Tanjung Dua Belas, iii) a 2.4m diameter twin-pipe connecting the intake structure and the water treatment plant, and iv) two overhead bridges crossing Elite Highway and South Klang Valley Expressway (SKVE). Management guided for a pre-tax margin of 8- 10% for the project.

• Background of Sungai Rasau Water Supply Scheme. Packages 2 and 3 for the Sungai Rasau Water Supply Scheme have already been awarded to Taliworks (TWK MK, BUY, TP: MYR1.12) for MYR896m in Dec 2021, with both packages to be completed by 31 Dec 2024. The latest project win related to Sungai Rasau to pave the way for Gamuda to secure more water- related projects, ie Stormwater Management And Road Tunnel 2 (SMART 2) and the Phase 2 of the Sungai Rasau Water Supply Scheme. The last time Gamuda was involved in a water-related construction projects was in 2000 – for the Sungai Selangor Water Supply Scheme (Phase 3).

• Earnings estimates. As the contract award is towards end-FY22, while site possession will take place on 15 Jul 2022, we are maintaining our FY22F earnings at this juncture, as revenue recognition will likely only begin in FY23, whereby the job replenishment assumption for the said year is MYR12.5bn. Our TP is unchanged, after ascribing a 2% ESG premium based on our in-house methodology. Gamuda is trading near its 5-year mean P/E, at +0.5SD from the KLCON index’s 5-year mean – hence our NEUTRAL rating. We believe positives for the stock are in the price. Rerating catalysts: Rollout of the Bayan Lepas Light Rapid Transit (LRT) project and new contracts related to green infrastructure.

• Upside/downside risks to our call include acceleration/delays in job replenishment and successful/unsuccessful bids for projects overseas.

Source: RHB Research - 4 Jul 2022