• BUY with new SOP-based MYR11.67 TP from MYR10.52, 27% upside and c.2% FY26F (Jul) yield. We expect Gamuda’s 1QFY25 (Jul) core earnings to be in the range of MYR200m-225m – translating into a YoY growth between 2.5% and 15%, backed by higher progress of key projects, namely overseas ones. We favour GAM’s diverse geographical exposure in addition to being relatively undervalued at FY26F P/E of 18x, not too far from the 16-17x P/E range seen during the 2017 upcycle when the outstanding orderbook was just c.MYR7.4bn (vs c.MYR30bn now).

• YTD FY25 job wins have reached c.MYR7bn vs our initial FY25 job replenishment target of MYR20bn. Near-term domestic job wins include: i) Penang Light Rail Transit (LRT) (estimated total MYR8bn for Segment 1) which may be awarded by end CY24 or early CY25 and ii) Sabah water supply scheme for the Upper Padas Hydroelectric project (Figure 1).

• Still has room to stomach DC jobs. GAM is currently working on three data centre (DC) jobs with an estimated capacity of c.100MW in total based on our estimates. We do not rule out the possibility that GAM could chalk up another c.200MW size of DC jobs in FY25 (as full annual capacity is around 200-300MW for its two Industrialised Building System factories) – this could translate into potential contract values of up to c.MYR6bn.

• Stands a chance in water infrastructure jobs. GAM’s track record in building and operating Sungai Selangor Water Supply Scheme Phase 3 could put the group in a strategic spot to eye for the raw water transfer project to Penang from Northern Perak (c.MYR4bn). Plans for Air Selangor’s Stage 2 of the Sungai Rasau Water Supply Scheme (c.MYR2bn) and to build four new water treatment plants by 2030 could also be of GAM’s future interest.

• Prospects down under. There are about AUD4bn worth of renewable energy (RE) jobs in the pipeline comprising solar, battery energy storage systems, and transmission lines that GAM has been shortlisted for in Australia. Recall that GAM has also been shortlisted for the Suburban Rail Loop East linewide package (we estimate c.AUD3bn for GAM’s share) and the Sydney Metro West stations package (likely AUD1-1.5bn in our view).

• We envisage further upside to our earlier new job targets for FY25-27F, which may likely come from a mix of Australian RE and rail jobs that we previously did not account much for. Hence, we revise our FY25/FY26/FY27 job replenishment assumption to MYR25bn/MYR18bn/MYR15bn from MYR20bn/MYR15bn/MYR12bn. However, we slash FY25F earnings by 11% as we conservatively backload some of the progress billings to FY26F and FY27F (we view our earlier FY25 projections were too optimistic), leading to 5% and 9% increases for FY26 and FY27. We now peg the overseas construction arm to a higher P/E of 22x (from 20x) to be aligned with valuation of RE providers in Australia. Therefore, we arrive at an SOP- derived TP of MYR11.67 (from MYR10.52), which bakes in an 8% ESG premium. Key risks include cost overruns and sluggish awards.

Source: RHB Securities Research - 10 Dec 2024