Overview

Gamuda Bhd (GAMUDA) is an engineering, property and infrastructure company. It is one of the largest Malaysian infrastructure companies and has undertaken various local and overseas projects. These include MRT lines, highways, railways, tunnels, dams and water treatment plants, infrastructure concessions, and the development of new townships.

Investment Themes

• Strong Frontrunner of Upcoming Mega Railway Projects. Given GAMUDA's proven track record in constructing railway infrastructure, the company is well-positioned as the leading contender for several upcoming large-scale projects. These include the Penang Light Rail Transit (LRT), Mass Rapid Transit 3 (MRT3), and the KL-Singapore High Speed Rail (HSR). Notably, the federal government has awarded the initial segment of the Penang LRT project to the GAMUDA-led SRS Consortium, with the final details anticipated to be finalised by the end of CY24.

• Robust Earnings Visibility Backed by Its Resilient Orderbook. The group's outstanding construction order book stands at approximately RM24.2bn, providing earnings visibility up to FY28. This order book could see further growth from the Penang LRT and MRT3 projects, for which the group is a frontrunner for the tunnelling packages. Additionally, the group is targeting RM5.0bn in property sales for FY24, driven by local township developments and overseas projects. As of the end of March 2024, unbilled property sales stood at RM6.7bn.

• Overseas Expansion is Intact, with Margin Improvement on The Cards. Looking ahead, we anticipate a gradual improvement in construction margins, bolstered by increased revenue contributions from local projects and enhanced economies of scale achieved through new projects in Australia. Currently, GAMUDA has been shortlisted for four projects (three in Melbourne and one in Sydney), with the Suburban Rail Loop East second package expected to be awarded soon. We believe this will strengthen GAMUDA's presence in the Australian infrastructure sector and set the stage for future bids.

Risk

• The key risks associated with our call are as follow:- (1) delays in the roll-out of infrastructure projects, (2) project execution risks, and (3) cost escalation of construction materials.

Recommendation

• We reiterate our SOP-derived target price at RM8.13 (ESG: ★★★★). Maintain Buy on the stock.

Source: TA Research - 2 Jul 2024