GAMUDA’s FY22 results beat expectations due to stronger-than-expected performance from the construction and property divisions. It has set itself a highly ambitious growth target, i.e. RM20b annual turnover by FY26 (vs. only RM6b achieved in FY21). We raise our FY23F earnings by 47%, increase the TP by 10% to RM5.15 (from RM4.70) and maintain our OUTPERFORM call.

Its FY22 CNP to RM836m beat our forecast and consensus estimates by 11% and 23%, respectively. The variance against our forecast came largely from stronger-than-expected performance from its construction and property divisions.

Its FY22 revenue (including JVs) was up 29% driven largely by a doubling in property billings while the top lines at construction and toll road/water operations were flattish. The strong property number was underpinned by: (i) a pick-up in construction progress, and (ii) RM4b sales in FY22 (meeting its target and slightly above our assumption of RM3.7b), bringing its unbilled sales to a record RM6.2b). CNP increased by a larger 41% thanks largely to recognition of cost savings from MRT2 that was at the tail-end of construction.

The key takeaways from the analyst briefing yesterday are as follows:

1. The RM2.2b proceeds from the disposal of its toll roads could come in as early as mid-October 2022 as the acquirer Lebuhraya Rakyat (ALR) has successfully raised some RM5.5b via bonds.

2. Gamuda plans to distribute out RM1b as a special dividend. The balance RM1.2b will be channelled to funding: (i) renewable energy assets (with locked-in off-takers via “virtual power purchase agreement”), (ii) MRT3, (iii) Penang South Reclamation, and (iv) overseas projects primarily in Ho Chi Minh City, Vietnam, as well as Melbourne, London and Singapore. The company guided for a project hurdle rate in the high teens.

3. Gamuda has set itself a highly ambitious growth target, i.e. RM20b annual turnover by FY26 (vs. only RM6b achieved in FY21). To do that, it needs RM12b new construction job wins (with about AUD3b or RM9b from Australia) and RM8b property sales annually (see Chart on Page 3).

4. It has raised its combined construction order book replenishment target in FY22 and FY23 to RM28b (from RM25b). Thus far, it has bagged RM11.7b. It is currently eyeing: (i) MRT3 underground package – RM5-6b (at 50% stake), (ii) Penang South Reclamation Project – RM5b, (iii) Melbourne’s North East Link – RM3b (50% stake), and (iv) Australia’s Suburban Rail Loop – RM3b (50% stake). With the healthy pipeline of potential contracts, we raise our FY23F replenishment to RM15.5b (from RM12.5b). Its outstanding construction order book now stands at a record RM14b.

We raise our FY23F earnings forecast by 47% to reflect: (i) higher property sales of RM4.5b (from RM4.0b) and (ii) higher replenishment of RM15.5b (from RM12.5b). Meanwhile, we introduce FY24 earnings of RM1.1b backed by FY24F replenishment of RM12b and property sales of RM5b.

Maintain OP with higher SoP-TP of RM5.15 (from RM4.70) on higher construction profits based on unchanged 18x PER. We continue to like GAMUDA given: (i) the good chances of it garnering a significant slice of action in MRT3, (ii) its recent job wins in in Australia and Singapore that speak eloquently for its competitiveness in the international market, (iii) the lumpy proceeds from the disposal of its toll assets, putting it in a strong position to participate in public infrastructure projects on a PFI or deferred payment model, and giving out a special dividend. and (iv) its strong earnings visibility underpinned by record high outstanding orderbook of RM14b. There is a 5% premium accorded to its TP given a 4-star ESG rating as appraised by us (see Page 5).

Risks to our call include: (i) governments cutting back on public infrastructure spending on austerity drive, (ii) delays in the rollout of key public infrastructure projects in Malaysia such as MRT3, (iii) delays in the PSI project due to funding/environmental issues.

Source: Kenanga Research - 30 Sept 2022