• Keep BUY and SOP-based MYR6.30 TP, 20% upside and c.2% FY24F (Jul) yield. Taiwan’s Hualien County (Eastern Taiwan) was struck by an earthquake with a magnitude ranging between 7.2 and 7.5 on the Richter scale on 3 Apr. The earthquake's epicentre was located about 18km (11 miles) south of Hualien, according to the US Geological Survey. This was in fact the strongest earthquake to hit Taiwan in 25 years.

• Gamuda’s Taiwan job profile. As of end January, Taiwan jobs made up MYR4.5bn (spread across six contracts), or 19% of Gamuda’s MYR24bn outstanding orderbook. Out of the six ongoing jobs in Taiwan – the rail related projects are the ones with a completion rate of 1% and below; indicating that major works such as tunnelling may not have commenced. The related rail projects are the Kaohsiung MRT (MYR3bn with an 88% effective share) secured in Oct 2023 and the TaoYuan City Underground Railway project (MYR1.3bn with 60% effective share) clinched in Oct 2022. Other jobs in Taiwan comprise mainly of structures such as sea wall reclamation, marine bridges and its extensions which are 75-90% complete as of January.

• No impact towards Gamuda’s work sites in Taiwan. Location wise, the construction sites of the Gamuda’s projects are far away from Hualien County (at least 200km from the epicentre). As such, there was no major impact coming from the said earthquake as the respective sites of Gamuda only felt a 4-4.5 magnitude on the Richter scale which is considered to be a light earthquake which can be felt but generally causes no damage.

• No changes to our earnings estimates as we see no major adverse impact towards Gamuda’s operations at its work sites in Taiwan. As such, our SOP- derived TP of MYR6.30 remains, after baking in a 6% ESG premium. Our BUY call is premised on its current valuation, trading at 13.9x FY25F P/E which we view as unjustified – GAM was trading at a 16x P/E in mid-CY17 during the construction upcycle when its orderbook was only at MYR7.8bn compared to MYR24bn now. Furthermore, Gamuda is the cheapest large cap counter vs other peers such as Sunway Construction (SCGB MK, BUY, TP: MYR3.34) and IJM Corp (IJM MK, BUY, TP: MYR2.76).

• Re-rating catalysts include faster-than-expected rollouts anticipated for Malaysia and Australia projects, particularly the Mass Rapid Transit 3 or MRT3 (which we expect to be in 4QCY24) (base case scenario) and the Suburban Rail Loop East tunnelling package (likely to be known by July). Icing on the cake would be consistent wins for data centre jobs within the Klang Valley area as Gamuda had completed the 8MW AIMS Cyberjaya data centre within a period of nine months.

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

Source: RHB Research - 4 Apr 2024