• Stay BUY and MYR5.31 TP (SOP), 15% upside, 3% FY24F (Jul) yield. Gamuda, via an unincorporated JV agreement with Asia World Engineering & Construction, has secured the YC01 work package from the Kaohsiung City Government’s Mass Rapid Transit Bureau to build the Kaohsiung Mass Rapid Transit Metropolitan Line (Yellow Line) for MYR3.5bn. The Yellow Line is slated for completion within nine years. The effective share of the contract for Gamuda is MYR3bn or 88%.

• Track record in Taiwan. The YC01 project entails a 4.4km railway track located within Niaosong District with an 8% PBT margin pencilled in. More importantly, this is the third railway-related job secured in Taiwan after the MYR1.3bn Taoyuan City Underground Railway project and MYR809m C04 stretch of the Kaohsiung Mass Rapid Transit wins – both in Oct 2022. Other ongoing jobs in Taiwan include a marine bridge, seawall extension, and transmission line (balance works worth c.MYR400m).

• Orderbook impact. Post this job win, Gamuda’s outstanding orderbook stands at MYR24.8bn, which translates into an orderbook-to-revenue cover ratio of 4x. On further scrutiny, Taiwan jobs now constitutes c.5.3bn or 21% of its overall construction orderbook. Contracts from Australia, Singapore, and Malaysia make up c.46%, c.6.%, and c.27% of its orderbook.

• Prospects. During the last briefing in September, management was optimistic about securing up to six large projects within the next 3-15 months. With this latest job in Taiwan secured, other upcoming potential wins include the Penang Light Rail Transit, Mass Rapid Transit 3 (MRT3), Phase 1B of the Pan Borneo Highway Sabah, another infrastructure job in Taiwan, and second package of the Suburban Rail East Loop. More importantly, the ongoing review for the Sydney Metro West project is unlikely to impact Gamuda’s portion amid the group’s sizeable progress of nearly 40%. Additionally, DT Infrastructure’s (acquired in 2023) presence in Western Australia (c.40% of its revenue) could avoid major budget cuts, given that the state is Australia’s mining hub.

• No changes to our earnings estimates, as the latest job win is within our FY24 job replenishment assumption of MYR15bn. As such, our new SOPderived TP of MYR5.31, which bakes in a 2% ESG premium, is unchanged. We believe Gamuda’s current 12.9x FY24 P/E is 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 vis-à-vis MYR24.8bn now. Our BUY call is premised on its diverse geographical base for its construction and property arms with c.50% of profits coming from overseas.

• A further rerating catalyst would be Gamuda’s potential to win the c.MYR4-6bn MRT3 systems package after being prequalified for the job. Additional upsides may come from an earlier-than-expected award for the remaining package of the Suburban Rail East Loop project in Australia.

• Key risks include slower-than-expected job replenishment trends.

Source: RHB Securities Research - 26 Oct 2023