• Maintain NEUTRAL, new SOP-based MYR3.83 TP from MYR3.62, 0% upside with c.3% FY24F yield. FY22 (Jul) core profit stood at MYR832m (+41.5% YoY) and met >105% of our and Street’s full-year estimates – exceeding expectations. The positive deviation was due to the better-than- expected sales booked for the property business. As Gamuda is trading near +2SD from its 5-year historical mean P/E, our stance is neutral on this stock, with most positives from the Mass Rapid Transit 3 (MRT3) project having been priced in at this juncture.

• Performance review. Gamuda’s construction wing recorded a PBT of MYR389.5m (+14.3% YoY) for FY22. This was partly due to more provisions being written back and recognised in the bottomline as the Mass Rapid Transit 2 (MRT2) project is nearing completion (94% progress). As such, the PBT margin for the construction segment was stronger at 18% in FY22 (FY21: 17.3%). On further scrutiny, Gamuda’s property segment saw a 103% YoY jump to a PBT of MYR438.2m in FY22 (FY21: MYR216.2m). This was on an 82% YoY expansion in domestic presales growing faster than overseas presales, which only grew 13% YoY during this period.

• Outlook. As at 31 Jul, Gamuda’s construction orderbook stands at c.MYR14bn. Potential new jobs for the company – aside from MRT3 (expected award: as early as November) – include the North-East Link highway and Suburban Rail Loop in Melbourne. Tenders are expected to be out in 4QCY22 with the outcome to be known in 1HCY23. However, we flag execution risks, as Gamuda is relatively new in Australia. Meanwhile, the company plans to build up its “Quick Turnaround Projects” to complement core townships, which could facilitate presales growth to reach MYR6bn by FY24 vs FY22’s MYR4bn. With regard to the highway disposal deal, Amanat Lebuhraya Rakyat or ALR has successfully raised the MYR5.5bn sukuk to acquire the four highways with cash proceeds to Gamuda expected to be received sometime in October.

• Earnings estimates and valuation. We are revising our FY23 and FY24 earnings estimates upwards by 14.2% and 13.9%. This is to account for the higher FY23 job replenishment target of MYR13.5bn (previously MYR10bn), which is at the middle of management’s guidance of MYR12- 15bn. We also introduce FY25F earnings at the same time with a job replenishment assumption of MYR10bn. Our valuation base year is also rolled forward to FY24. As a result, we arrive at a new TP of MYR3.83 after ascribing a 2% ESG premium based on our in-house methodology. A re- rating catalyst for the stock is the approval of the Environmental Impact Assessment or EIA report for the Penang South Islands or PSI project, which could boost the orderbook by MYR5bn.

• Risks. The upside risk to our call is an acceleration in job replenishments. The opposite represents the downside risk.

Source: RHB Research - 30 Sep 2022