• Maintain BUY and SOP-derived MYR5.27 TP with 18% upside. Gamuda’s property arm, Gamuda Land (GL) – via its three foreign sub- subsidiaries in Vietnam – has entered into a share transfer agreement to acquire 100% equity interest in Tam Luc Real Estate Corporation (TL) for VND7.2bn (c.MYR1.5bn). TL is the sole owner of the 9.1 acre mixed-use project land in Thu Duc City, Ho Chi Minh City (HCMC), Vietnam. Our BUY call is premised on its attribute of having a strategic hedge to downside risks from job flows in Malaysia, as c.50% of its profit comes from overseas.

• Further details. The purchase price for the project land of VND7.2bn was slightly lower than the market value of VND7.3bn as assessed by Cushman & Wakefield in May. The project land is a shovel-ready mixed-use high-rise project site with all requisite planning approvals obtained and ready for immediate development which lower the risk of revocation by the Vietnam Government. Permit to construct includes 1,968 exclusive apartments, 12 penthouses, 51 podium shops, and 21 shophouses with a potential GDV of MYR5.1bn. Post-acquisition, Gamuda’s net gearing is expected to rise to 0.19x (with 58% of the deal amount to be fulfilled with borrowings) from 0.05x as of 30 April – which is still well below its gearing limit of 0.7x.

• We expect this acquisition will strengthen GL’s footprint in Vietnam with c.90% (or MYR13bn) of its overseas GDV (inclusive of quick- turnaround projects) already coming from projects in Vietnam prior to this particular acquisition. Furthermore, the acquisition gives an opportunity for GL to access prime sites that have been limited in HCMC amid imposed restrictions for high rise projects from 2021 to 2030. GL’s overall landbank post acquisition would be c.3.9k acres, amounting to >MYR60bn in GDV.

• Prospects. The proposed development would be a high-end segment with a selling price of USD4k-7k per sqm. Prospects are backed by stable absorption rates of >75% for new high-end properties over the past five years. Competition risks are manageable with no new high-end projects projected to enter near the area within two years, while the neighbouring Thu Thiem new urban area is dominated by upper-high-end segments priced >USD7k per sqm. Connectivity wise the project land is a short drive to Hanoi Highway with a highway connecting to the Saigon Hi-Tech Park.

• Earnings and valuation. We make no changes to our earnings estimates pending completion of the deal. Property launches related to the said project land are expected to take place early 2024 and should be developed within a 5-year period. We keep our SOP-derived TP at MYR5.27 which includes a 2% ESG premium. We consider Gamuda’s current 13x FY24 P/E unjustified as the stock was trading higher at 14x P/E in mid-2017 during the construction upcycle when its orderbook was only MYR7.8bn vs MYR21.5bn currently.

• A further rerating catalyst for the stock is Gamuda’s potential to win the c.MYR4-6bn MRT3 system package (since it has been prequalified).

• A key risk to our call is slower-than-expected job replenishment.

Source: RHB Research - 21 Jul 2023