• Maintain BUY and SOP-based MYR6.30 TP, 22% upside with c.2% FY24F (Jul) yield. Gamuda has signed a teaming agreement with Rohas Tecnic (RTEC MK, NR) a leading Malaysian supplier of turnkey solutions for transmission networks, to enter into an exclusive JV to bid for and build Australian energy transmission projects. Such a collaboration is crucial for the group achieve AUD2bn of revenue in Australia from energy projects within five years.

• Transmission line landscape in Australia. The Integrated System Plan released by Australian Energy Market Operator shows that by 2050, the country requires 10,000km of high-voltage new transmission lines are needed to supply renewable energy (RE) around Australia. There are currently AUD53bn worth of transmission projects approved, earmarked or in planning – ahead of achieving Australia’s target of an 82% RE mix by 2030. A transmission line project could be worth c.AUD2m per km, based on existing projects such as the AUD1.8bn EnergyConnect project (900km) with PBT margins likely ranging 6-8%, in our view. Assuming a 50:50 JV between Gamuda and RTEC, the contract value could be AUD500m for Gamuda for a 500km transmission line (based on a AUD2m per km assumption).

• Since the new transmission lines are for RE, we understand that such projects will be in areas called RE zones (REZs). REZs will group new wind and solar power generation into locations where it can be efficiently stored and transmitted (Figure 1). For instance, New South Wales has earmarked five locations for REZs (Figure 2).

• Execution risk to be manageable as RTEC, through its subsidiary HG Power Transmission (HGPT), is an established international specialist that has delivered 4,700km of transmission networks and infrastructure projects across 11 countries. HGPT has the capacity to supply 42,000 tonnes of transmission towers annually alongside an approved standardised tower design database and in-house design team.

• RTEC is no stranger to Gamuda. Rohas in 2003 was involved in Gamuda’s Sungai Selangor Water Supply Scheme (phase 3) project at Bukit Badong (second stage) via a JV with a UK-based firm, Biwater (contract value: USD80m). The job involved the design, supply, installation and commissioning of all electro-mechanical equipment and construction of all civil structures.

• No changes to our earnings estimates. As such, our SOP-derived TP of MYR6.30 is unchanged, and includes a 6% ESG premium. We view that GAM’s current 13.7x FY25 P/E is undemanding, as it was trading around 16x P/E in mid-CY17 during the construction upcycle when its orderbook was only at MYR7.8bn (compared to c.MYR24bn now).

• A rerating catalyst would be the consistent flow of job wins related to data centres within the Klang Valley, as Gamuda completed the 8MW AIMS Cyberjaya data centre within nine months.

Source: RHB Research - 19 Apr 2024