We came away from our recent engagement with GAMUDA feeling positive about its near-term outlook. Key takeaways are as follows: (i) strong earnings feasibility, (ii) continuing to explore opportunities abroad, and (iii) maintaining RM5.6bn new property sales target. Maintain BUY with a higher SOP-derived TP of RM5.55/share.

Strong Earnings Feasibility

To recap, the company has demonstrated an impressive trajectory, achieving YoY core net profit growth of 32.9% in the 1QFY24, driven by strong overseas performance in both the construction and property divisions. We believe that this momentum should be sustainable, backed by a record high outstanding construction orderbook of RM25.8bn and unbilled property sales of RM6.7bn. Additionally, potential upside to future earnings may arise from the MRT3 project, where the group is a front runner for the tunnelling package. However, management indicates that the commencement of MRT3 is more probable in 2H24, considering the extension of tender validity to end-Mar24 from end-Dec23. On a positive note, progress on the Penang LRT Project, where Gamuda is poised to play a crucial role, appears promising. According to management, discussions are in an advanced stage, and the anticipated rollout is expected by the end of 2QCY24, following the finalization of project implementation details.

Continuing to Explore Opportunities Abroad

The management conveyed during the meeting that the group is actively pursuing opportunities abroad by bidding for mega infrastructure projects in Australia, Singapore, and Taiwan. We are upbeat on the Australian construction outlook, buoyed by the Australian government's commitment to a 10-year, AUD120bn infrastructure pipeline (equivalent to approximately RM375bn). Assuming an annual average allocation of AUD12bn, we anticipate that GAMUDA, leveraging its well-established track record and comprehensive construction capabilities, can secure c.AUD2.5bn worth of projects each year.

Maintain RM5.6bn New Property Sales Target

Despite achieving only RM454mn in new property sales in 1QFY24, representing just 8% of its FY24 sales target of RM5.6bn, management remains confident in achieving the overall sales target. Anticipating a sales upswing in the coming quarters, the optimism is based on robust domestic sales, especially with the debut launch of Gamuda Park in mid-2024, and an increased contribution from quick turnover projects (QTPs) overseas. In terms of landbanking strategy, GAMUDA is strategically realigning its portfolio to focus more on QTPs. This involves adding two more QTPs in 2024, bringing the total to 10 QTPs, with plans to introduce 2 or 3 new QTPs annually thereafter to strengthen the division's efficiency and agility in the market.

Forecast

We Retain Our FY24-26F Earnings Forecasts.

Valuation

We arrive at a new SOP-derived TP of RM5.55 (previously RM5.19). This incorporates an increased PER multiple of 24x (previously 22x) for the construction division to reflect the strong regional expansion outlook. Additionally, we have performed some housekeeping on the property division's RNAV estimate while retaining our valuation approach with a 50% discount to RNAV. Reiterate Buy.

Source: TA Research - 16 Jan 2024