• Stay BUY, new MYR5.27 TP (SOP) from MYR4.95, 24% upside and 3% FY24F yield. 9MFY23 (Jul) core earnings stood at MYR608.4m (+10.4% YoY), broadly in line with our projections (79%) but exceeded Street’s at 83% of full-year estimates. The positive deviation was on better-than- expected progress of the Sydney Metro West (SMW) job (reaching 27% as at end 3QFY23 vs our 20% progress for FY23). Our call on Gamuda is premised on its attribute as a strategic hedge to any downside risks from job flows in Malaysia, given that c.50% of bottomline comes from overseas.

• Results review. The construction arm posted a 3QFY23 PBT of MYR181m (>100% YoY) – backed by the SMW project’s higher progress. As such, PBT margin for the construction arm stood at 13.2% (3QFY22: 5.1%). The property wing saw a 19% YoY drop to a 3QFY23 PBT of MYR128m (3QFY22: MYR158m) due to projects such as Celadon City (Vietnam) and OLA (Singapore), which have seen slower sales momentum after peaking in FY21-22. The property arm is set to see stronger sales momentum in the coming quarters from quick turnaround projects, particularly in Vietnam, eg Artisan Park and Elysian, which have achieved take-up rates of 45-55%.

• Prospects. The construction arm secured a MYR3.5bn job for Phase 1 reclamation works Penang South Island’s Island A (c.1,260 acres). Gamuda’s effective outstanding orderbook now stands at MYR21.5bn, ie 6.6x cover ratio vs peers’ 3.9x. The group targets to secure MYR25bn worth of new jobs over FY24-25. We believe this is manageable, as it already won MYR24bn in new contracts in FY22-23, including the latest reclamation job. We expect no major job wins for the rest of FY23, as results of the Suburban Rail Loop East (SRLE) bid (cumulative value: AUD5.5bn) in Australia may be known in late 2023 only. The same timeline could apply for the Mass Rapid Transit 3 (MRT3) contract rollouts following the extension of the tender validity period to end Sep 2023 from end Jun 2023 previously. We believe a win from any of the two SRLE packages could be in excess of MYR5bn – almost matching MRT3’s major tunnelling package of c.MYR6bn (assuming a 50% JV share). Henceforth, any further MRT3 delays will not be a major concern for Gamuda.

• Despite earnings being broadly in line with expectations, we revise our FY23F-25F bottomline upwards by 6-10% to account for the faster progress billings of the SMW job. Post the earnings revision, we arrive at a new SOP- derived MYR5.27 TP, baking in a 2% ESG premium. We view Gamuda’s current 12.4x FY24 P/E as unjustified, as it was trading at a 14x P/E in mid- 2017 – during the construction upcycle – when its orderbook was only at MYR7.8bn vs MYR21.5bn now.

• A further re-rating catalyst for the stock is a faster-than-expected rollout of big ticket infrastructure projects. Gamuda’s potential to win the c.MYR4- 6bn MRT3 system package also serves as a catalyst, as the group has been prequalified for said package. A key risk is slower-than-expected job replenishment trends.

Source: RHB Research - 23 Jun 2023