• Still BUY, with new SOP-based MYR5.31 TP from MYR5.27, 23% upside and c.3% FY24F (Jul) yield. FY23 core net profit of MYR860m (+7% YoY) met our, but exceeded Street at 102% and 110% of full-year estimates. In fact, this is an all-time record profit for Gamuda underpinned by its overseas projects which may see further profit recognition in the coming quarters. Our BUY call is premised on its diverse geographical base for its construction and property segments with c.50% of profit coming from overseas.

• GAM’s construction segment recorded a PBT of MYR619m (+26% YoY) for FY23 – mainly contributed by the Sydney Metro West (SMW) project which reached 37% completion as at end-Jul 2023 vs 5% a year ago. Despite overseas projects commanding lower margins vs domestic ones, the PBT margin of the segment remains strong above 10% in FY23. Meanwhile, its property segment saw a 10% YoY growth in PBT for FY23, supported by presales of quick turnaround projects (QTP) in Vietnam (strong take-up rates of 70-84%) which constituted 55% of overseas presales at MYR1.1bn (FY22: MYR75m). This segment’s earnings visibility will be supported by unbilled sales of MYR6.7bn (end-FY23) vs MYR6.2bn (end-FY22).

• Prospects. GAM’s construction orderbook stood at MYR20.6bn as at end FY23 (3.7x cover ratio). The group has secured MYR24bn of new jobs in FY22-23 and targets to replenish MYR25bn in FY24F-25F. On further scrutiny, management guided that it may secure up to six large projects (domestic and overseas) in the next three to 15 months. These projects may include the Penang Light Rail Transit (likely to be out by end CY23 as per the Government’s plan), Mass Rapid Transit 3 (tender validity has been extended to end-CY23 from Sep 2023), one out of two infrastructure jobs in Taiwan, Pan Borneo Highway Sabah and the second package of the Suburban Rail East Loop. More importantly, the ongoing review for the SMW project is unlikely to impact GAM’s portion amid the group’s sizeable progress of 37%. Additionally, DT Infrastructure’s (acquired in CY23) presence in Western Australia (c.40% of its revenue) could avoid major budget cuts as the state is Australia’s mining hub.

• Despite earnings being in line, we lift FY24F-25F earnings by 5-10% as we raise our job replenishment target in FY24F-25F to MYR25bn (FY24F: MYR15bn, FY25F: MYR10bn) from MYR23bn in light of the group’s geographical outreach. We also introduce our FY26F earnings with a job replenishment assumption of MYR10bn while adjusting the latest net debt input in our SOP valuation post results release. As such, we derive a new SOP-derived TP of MYR5.31, baking in a 2% ESG premium. We believe GAM’s current 12.1x FY24F P/E is unjustified as it was trading at a 14x P/E in mid-CY17 during the construction upcycle when its orderbook was only at MYR7.8bn compared to MYR20.6bn now.

• A further rerating catalyst would be Gamuda’s potential to win the c.MYR4-6bn MRT3 system package after being prequalified for the job.

• A key risk includes slower-than-expected job replenishment trends.

Source: RHB Securities Research - 29 Sept 2023