Review

• Excluding the one-off gain from exceptional items, GAMUDA’s 1HFY24 core earnings of RM390.3mn came in at 42.2% and 39.6% of our and the consensus’ full-year estimates, respectively. We deem the results within our expectations as we anticipate stronger 2HFY24 earnings driven by lumpy recognition of overseas projects upon completion.

• YoY, 1HFY24 core earnings grew 16.4%, primarily fueled by increased contributions from overseas projects across all sectors. The PBT of the construction division rose to RM269.mn (+2.2% YoY) largely due to higher contributions from overseas projects. Additionally, the property division's PBT surged to RM209.mn (+39% YoY) driven by improved margins.

• QoQ, 2QFY24 core profit improved by 9.5% to RM204mn, in tandem with the revenue growth of 18.8% to RM3.3bn. The improvement was primarily attributed to higher project contributions from abroad and increased sales from the property division.

Briefing Highlights

Construction

• GAMUDA’s unbilled construction order book stands at RM24bn, equivalent to 4.1x FY23 construction revenue. This translates to robust earnings visibility up to FY28.

• Against the backdrop of stringent fiscal policies, the company foresees a delay in the rollout of the MRT3 without an extension on tender validity. However, GAMUDA remains optimistic about the imminent rollout of the Penang LRT project. Discussions are currently at an advanced stage to finalise the implementation model, which will be funded by the federal government. Meanwhile, the reclamation works on the Penang South Island project are on track, with 15 acres of land reclaimed to date. Plans are in place to expedite the project further by deploying two new dredgers, expected to commence operations in the coming months.

• Progress on Australian projects is proceeding as planned, with significant milestones achieved across various projects. The Sydney Metro WestWestern Tunnelling Package has reached 54% completion, while Coffs Harbour project and the M1 Motorway project are respectively at 32% and 20% completion. Additionally, negotiations for the power purchase agreement (PPA) and tariff structure concerning the Upper Padas Hydroelectric project are advancing positively. The power plant aims to achieve financial close by mid-2024, and the construction value, as well as the terms of the PPA and tariff structure, are expected to be finalised by then.

• Management remains confident of achieving the RM10bn new contract win target in FY24. This optimism stems from the potential to secure two sizeable data centre building contracts and several new infrastructure projects in Australia.

Property Development

• Management expects the property division performance to strengthen further in 2H, driven by lumpy recognition from overseas projects upon completion, as well as stronger revenue recognition from ongoing projects and Quick Turnaround Projects (QTP) in the upcoming months.

• In terms of property sales, the property division achieved sales of RM720mn in 2QFY24, bringing its YTD sales to RM1.2bn (+13% YoY). Management expects the property division to see more robust sales in 2HFY24, thanks to sizable bookings of RM0.6bn in hand, resilient sales from ongoing projects and the launch of two new projects, namely Gamuda Park, Rawang (RM4bn GDV) and Eaton Park, Ho Chi Minh City (RM5.1bn GDV). However, despite these positive developments, management has lowered the FY24 sales target to RM5.0bn from RM5.6bn previously. This revision is primarily due to delays in concluding land sales in Vietnam.

• As of the end of January 2024, the unbilled property sales stood at RM6.7bn.

Impact

• Maintain FY24-26F earnings forecasts.

Outlook

• We maintain our positive outlook on the group's ability to achieve substantial earnings growth in the 2HFY24 compared to the 1HFY24, attributed to its resilient outstanding order book and strong backlog of unbilled property sales.

Valuation

• Our SOP-derived target price is adjusted higher to RM6.18 from RM5.55 previously. This is premised on:- (i) a higher target PER of 25x based on the anticipated stronger earnings trajectory supported by more data centre building contracts in Malaysia and EPCC contracts for renewable energy projects in Australia while rolling over the valuation basis to CY25 for the construction division, and (ii) reducing the discount on the property division's RNAV from 50% to 40%, driven by the improved earnings outlook resulting from stable overnight policy rate and resilient demand for new housing projects. Maintain Buy on GAMUDA.

Source: TA Research - 29 Mar 2024