• Keep BUY, with new SOP-based MYR6.30 TP from MYR6.46, 20% upside and c.2% FY24F (Jul) yield. Gamuda’s 1HFY24 core net profit of MYR404m (+5% YoY) missed our and Street estimates – making up 42% and 41% of FY24F. The negative deviation was from our initial billing estimates being too optimistic. Our call is premised on its current valuation, trading at 13.7x FY25F P/E which we view as unjustified – GAM was trading at 16x P/E in mid- CY17 during the construction upcycle when its orderbook was only at MYR7.8bn vs MYR24bn now.

• GAM’s construction arm recorded a PBT of MYR270m (+2% YoY) for 1HFY24 as overseas projects (particularly from Australia) played a role in adequately filling up the void from the domestic job front. With overseas projects (that have relatively lower margins vs domestic jobs) now making up c.87% of construction revenue – the lower PBT margin of 5.8% in 1HFY24 (1HFY23: 10.8%) was of no surprise. Moving forward, we expect construction margins to be sequentially higher amidst the ramp up in local projects (with higher margin) such as the Silicon Island reclamation job with two new larger dredgers on its way and the Sungai Rasau Water project.

• The property segment saw a 39% YoY growth in PBT for 1HFY24 with domestic projects making up 70% of sales. We envisage property earnings to be stronger in 2HFY24 due to lumpy recognitions (particularly from Singapore and London) plus MYR600m of bookings to be converted into sales. Moreover, the property arm’s unbilled sales stand at MYR6.7bn (end 1HFY24) vs MYR5.4bn (end 1HFY23).

• Prospects. GAM’s construction orderbook stood at MYR24bn as of end- January (c.4x cover ratio). The group has secured c.MYR4.8bn worth of new jobs for YTD-FY24 with the Upper Padas Hydroelectric Dam potentially adding at least another MYR2-3bn to the orderbook (pending financial close). Local jobs such as the Bayan Lepas Light Rail Transit (construction cost: MYR6-7bn) and Pan Borneo Highway Sabah Phase 1B (estimated average value of one package: MYR600-800m) may likely be dished out by end-FY24. On the overseas front, the pipeline for GAM appears strong in Australia with three prequalified jobs (Figure 4). DT Infrastructure is also estimated to clinch at least AUD500m worth of new jobs per year. Therefore, we view that the MYR25bn new job wins target over FY24 and FY25 is achievable even without imputing a Mass Rapid Transit 3 win (estimated at c.MYR6bn).

• We cut earnings by 4-5% for FY24F-26F as we dial down on our construction billings progress which was initially more optimistic. Notwithstanding this, GAM is still set to post another record high profit for FY24, based on our estimates. Post earnings adjustment, we derive a new SOP-derived TP of MYR6.30 from MYR6.46, after baking in a 6% ESG premium. A rerating catalyst would be faster-than-expected wins for local and overseas jobs, particularly for MRT3, and renewable energy projects in Australia.

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

Source: RHB Research - 29 Mar 2024