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Still NEUTRAL, new MYR3.73 SOP-based TP from MYR3.83, 3% upside, c.3% FY24F (Jul) yield. Gamuda’s 1QFY23 core net profit of MYR190.4m (-32% QoQ, +24.9% YoY) exceeded our expectations at 32%, and met Street’s at 27% of full-year estimates. The positive deviation was from the better-than-expected performance of its property business. The risk of reviews surrounding big-ticket infrastructure projects such as the Mass Rapid Transit 3 (MRT3) (estimated attributable value to Gamuda: MYR6-8bn) could dampen job replenishment prospects.
Performance review. Gamuda’s construction segment recorded FY22 PAT of MYR83.7m (+2.8% YoY). The modest growth was backed by local (Sungai Rasau Water Supply Scheme) and overseas (Sydney Metro West and Coffs Harbour Bypass) start-up projects. As such, PAT margin for the segment was stronger at 11% in 1QFY23 (1QFY22: 9.5%). On further scrutiny, Gamuda’s property segment saw a >100% YoY jump to a PAT of MYR58.4m in 1QFY23 (1QFY22: MYR24.2m), supported by strong presales from key local townships (Gamuda Cove, Gamuda Gardens etc), boosting the local to overseas presales split to 60:40, from 50:50 previously.
Outlook. As at 31 Oct 2022, Gamuda’s construction orderbook stands at c.MYR14.8bn, with over four years of earnings visibility. It has a cumulative MYR25bn target for new job wins over FY22/FY23 with c.MYR13bn secured so far. We understand that Gamuda is no longer part of the preferred bidders list for the North-East Link highway project (total estimated cost: AUD15.8bn) but remains qualified to bid for the Suburban Rail Loop (SRL; AUD2.2bn allocation by the Australian Government) in Melbourne. SRL tenders are expected to be out in 4QCY22, with the outcome known in 1HCY23. However, we flag execution risks as Gamuda is relatively new in Australia – together with the risk of reviews by the Malaysian Government, which could see delays or cost reductions for mega projects such as MRT3. Meanwhile, with most of its Quick Turnaround Projects (QTP) under its property segment skewed towards Vietnam (in terms of GDV), we are cognisant of home buyers there facing tightening credit risks as the Vietnam state bank cautions against risky property loans.
We revise FY23-25earnings estimates by +13%, +13.5%, and +13.5% to account for higher revenue assumptions for the property development division – particularly the domestic segment. Post earnings and special dividend adjustments (ex-div date: 13 Dec), we arrive at a new MYR3.73 SOP TP – after ascribing a 2% ESG premium. A rerating catalyst for the stock is the approval of the state-funded Penang South Islands project (job value: MYR5bn), replacing any possible delays of the MRT3 rollout. Meanwhile, its green energy segment foray via ERS Energy may take some time before contributing meaningfully to the bottomline.
Upside/downside risk to our call: Acceleration/delays in contract awards.
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