• Stay NEUTRAL, new SOP-based MYR4.35 TP from MYR4.11, 5% upside. 1HFY23 (Jul) core net profit stood at MYR385m (+17% YoY), exceeding our but meeting Street’s at 58% and 55% of full-year estimates. The positive deviation was on better-than-expected progress of the Sydney Metro West (SMW) job. Most positives related to the Mass Rapid Transit 3 (MRT3) have been priced in at this juncture, with Gamuda seen as the front runner for the tunnelling package by virtue of its lowest bid and ready-to- be-deployed assets.

• Results review. The construction arm recorded a PBT of MYR163m (+63% YoY) for 2QFY23. Growth was mainly backed by the SMW project (20% physical progress as at end January). As such, PBT margin for the construction segment stood at 17.1% in 2QFY23 (2QFY22: 17.4%). The property segment saw a 17.7% YoY jump to a PBT of MYR77.4m in 2QFY23 (2QFY22: MYR65.8m), supported by projects such as Artisan Park and Elysian in Vietnam, which are seeing build-ups in sales momentum.

• Outlook. As at 31 Jan, Gamuda’s construction orderbook stood at c.MYR20.5bn (upon completion of the Australian transport projects’ acquisition by mid-2023). It has a cumulative MYR25bn new job wins target over FY22-23 with c.MYR20bn secured so far. Looking ahead, the outcome of the Suburban Rail Loop bid in Australia may be known after 1QFY24 while MRT3 contracts could be known in 2HCY23 – following the extension of the tender validity period to June/July. For the property arm, most of Gamuda’s property segment projects are skewed towards Vietnam (90% of total overseas GDV), under which local developers have started to default on their bonds – resulting in asset sales to cover their obligations. Despite the earlier-mentioned Vietnam property projects gaining momentum and the fact that it does not have any exposure to VND-denominated bonds, we remain wary of any potential spillover impact from Vietnam’s local property market to foreign property developers like Gamuda.

• We revise our FY23F-25F earnings upwards by 9-14% to account for the faster progress billings of overseas jobs, particularly SMW. Post-earnings revision, we arrive at a new SOP-derived TP of MYR4.35. With most positives priced in relation to MRT3 and its overseas prospects, the stock looks fairly valued as it is trading at a 12.4x FY24F P/E, which is near the KL Construction Index and Gamuda’s 5-year mean P/E.

• A re-rating catalyst is the approval of the environmental impact assessment for the Penang South Island project, which has faced a number of delays – this is likely to be known sometime between May and July. Should this go through, Gamuda would see an additional MYR5bn boost to its orderbook for the initial reclamation works of Island A, with future works potentially opening up replenishment opportunities for Islands B and C over the next 10 years. Aside from that, the only upside left for MRT3 is if Gamuda also clinches the systems packages estimated at MYR5-7bn.

• Upside/downside risks to our call include acceleration/delays in contract awards and a pick-up/slowdown in Vietnam’s overall property market.

Source: RHB Research - 24 Mar 2023