• Keep BUY, with new SOP-based MYR7.08 TP from MYR6.55, 17% upside and 2% FY24F (Jul) yield. Gamuda announced that it has received two contracts pertaining to a hyperscale data centre (HDC) (capacity: c.80MW) in Elmina Business Park (Elmina). One is from Sime Darby Property (SDPR MK, BUY, TP: MYR1.54) worth MYR815m to construct, complete, test and commission the HDC and the other one is from Pearl Computing Malaysia (PCM) worth MYR929m for the mechanical, electrical and plumbing works for the same HDC in Elmina.

• GAM has now secured c.MYR2.2bn of data centre (DC) jobs. Other DC jobs aside from Elmina include the AIMS Cyberjaya DC Block 2 (c.MYR200m) and Block 3 (c.MYR300m). In terms of FY24 new job wins, GAM has clinched jobs worth c.MYR9.3bn (includes Upper Padas hydropower construction estimated at MYR2.5bn). We take the view that news flow may come through for its Australia bids by end FY24F (ie Suburban Rail Loop East tunnelling package 2 worth c.AUD1.5bn based on a 50% share). Profitability wise, we expect PBT margin to be in the range of 10-12% for the HDC in Elmina.

• How does GAM maintain its upper hand in DC projects? GAM managed to complete AIMS Cyberjaya Block 2 DC (8 MW capacity) in eight months utilising its Next-Gen Digital Industrial Building System (IBS) solution rather than the anticipated 13 months. The group has also recommenced operations at its second IBS factory in Sepang in order to accommodate the DC jobs and some residential ones.

• No changes to our earnings estimates as the latest job wins are within our FY24 job replenishment assumption of MYR15bn. However, we take the opportunity to revise our target P/E for the Malaysia construction arm to 17x from 15x. Recall that GAM was trading around 15.5x P/E during the CY17 construction upcycle. The higher target P/E reflects the premium linked to the DCs which were not present back in CY17 and the group’s IBS factories which may facilitate the HDC’s smoother construction in Elmina.

• On top of Vietnam’s vibrant property market, GAM’s local project namely Horizon Hills (remaining GDV: MYR2.2bn) via a JV with UEM Sunrise (UEMS MK, BUY, TP: MYR 1.60) may see further traction with Iskandar Puteri being proposed as one of the location under the Johor-Singapore Special Economic Zone. As such, we lower our discount to RNAV for the property arm to 35% from 45%. All in, we arrive at a new SOP-derived TP of MYR7.08 (from MYR6.55) which bakes in a 6% ESG premium. We view GAM’s current 16x FY25 P/E as undemanding relative to other large cap construction counters trading at 19-21x FY25F P/E. Plus, we believe the group’s capability in IBS for DCs will provide further upside in terms of valuation and earnings.

• A rerating catalyst would be GAM securing more DC packages in Elmina and other industrial parks of SDPR such as Bandar Bukit Raja, Serenia Industrial Park, Hamilton Nilai City and Bandar Universiti Pagoh.

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

Source: RHB Research - 27 May 2024