• BUY, SOP-based TP rises to MYR5.66 from MYR5.41, 28% upside with3% FY24F yield. Gamuda’s 1QFY24 (Jul) core net profit of MYR195m(+2.4% YoY, as 1QFY23 still had residual recognition from the tollhighways) made up 20% and 19% of our and Street full-year projections.We deem the results as in line, as 1Q is usually the weakest quarter – saleschalked by its property division have yet to pick up at the start of the financialyear. Our BUY call is due to its diverse geographical base (c.70% profit fromoverseas), even as it remains relevant in sizeable projects at home.

• GAM’s construction arm recorded a PBT of MYR133m (+31% YoY) for1QFY24 – mainly contributed by the Sydney Metro West (SMW) projectwhich reached 39% completion (including variation orders) as at endOctober vs 7% a year ago. The lower PBT margin of the construction armof 5.9% in 1QFY24 (1QFY23: 13.9%) is reasonable, given the absence ofthe Mass Rapid Transit (MRT) 2 project which supported margins in FY22and FY23 as cost buffers were restored towards the tail-end of the project.Meanwhile, its property segment’s PBT surged 46% YoY in 1QFY24, withdomestic projects accounting for 61% of sales. We expect earnings of theproperty arm in the subsequent quarters to increase further, backed byquick turnaround projects (QTPs) such as Elysian and Artisan Park inVietnam and West Hampstead Central in London which make up 10% ofthe GDV under QTPs. Moreover, the property arm’s unbilled sales stand atMYR6.7bn (as at end-1QFY24) vs MYR5.8bn (as at end-1QFY23).

• Prospects. GAM’s construction orderbook stood at MYR25.8bn as of 6Dec, after including the job win for the West Coast station and tunnels ofSingapore’s Cross Island Line phase 2 worth MYR1.8bn announcedyesterday – translating to a 4.2x cover ratio. So far in FY24, the group hassecured c.MYR8bn worth of new contracts. We think that the MYR25bn newjob win target over FY24-25 is still achievable – potentially coming from thesecond package of the Suburban Rail Loop East, Penang Light Rail Transitand phase 1B of the Pan Borneo Sabah Highway.

• Additionally, in Australia, GAM was recently shortlisted for a highwayproject in Melbourne (exact project yet to be disclosed) while the Premier ofNew South Wales Chris Minns proposed that the Rosehill Racecourse is tobe transformed into a new metro station under the SMW project. GAM’stunnel boring machine launch site for the SMW project is located in theRosehill area – spelling more potential opportunities for the group.

• We maintain our earnings estimates but roll forward our SOP valuationbase year to FY25. As such, we derive a new SOP-derived TP of MYR5.66(from MYR5.41), after baking in a 4% ESG premium. GAM’s current marketvaluation of 11x FY25 P/E is unjustified, as it was trading at a 16x P/E inmid-2017 during the construction upcycle when its orderbook was onlyworth MYR7.8bn compared to MYR25.8bn now. A further rerating catalystwould be faster-than-expected wins for local and overseas jobs –particularly for MRT3 which had its tender validity extended to Mar 2024.

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

Source: RHB Securities Research - 7 Dec 2023