• Maintain BUY and SOP-based MYR9.68 TP (17% upside), c.2% FY25F (Jul) yield. Gamuda announced that its subsidiary, DT Infrastructure (DTI) – via an alliance (known as AD Alliance) with ALSTOM Transport Australia – was awarded the METRONET High-Capacity Signalling (HCS) project by the Public Transport Authority of Western Australia. The total contract value was AUD1.6bn (c.MYR5bn)

• News on the METRONET HCS project is not entirely new, as the Public Transport Authority of Western Australia had announced in April that AD Alliance was the preferred proponent for the said project. DTI’s 46% share in the alliance translates to an effective contract value of AUD737m (MYR2.3bn) for a duration of over 10 years from 2HCY24. The job scope includes designing, supplying, testing, and maintaining the Urbalis Communications-based train control on Perth’s suburban rail networks.

• The latest job win brings GAM’s FY24 YTD wins to c.MYR10bn (based on our analysis), with an estimated outstanding orderbook of MYR25bn. We estimate that c.MYR3.5bn of the YTD FY24 job wins are from DTI. With this, DTI easily contributes c.20% of the balance orderbook from Australia, which in turn, makes up c.43% of GAM’s outstanding orderbook, based on our calculations. We understand that the group aims to replenish new contracts via DTI at a tune of c.AUD1.5bn per year.

• No changes to our earnings estimates, as the latest job win was within our MYR13bn FY24F job replenishment assumption. We anticipate another potential job win by the end of FY24F, from the finalisation of the construction value for the Upper Padas Hydroelectric Dam (estimated at MYR2-3bn). Another potential job win by end FY24F is a package under the Phase 1B of Pan Borneo Highway Sabah, which has seen about four packages already awarded out of the total 19 job packages.

• Assuming an orderbook burn rate of MYR5bn between Jul-Dec 2024, with an estimated balance orderbook of MYR25bn, GAM needs MYR10bn of new wins to reach its MYR30bn orderbook target by end CY24. Other potential job wins within the next six months include the Penang Light Rail Transit Segment 1 (c.MYR4.8bn for GAM’s 60% share in SRS Consortium), and the water supply scheme for the Upper Padas Hydroelectric Dam (estimated to be at least MYR4bn), among others.

• With our earnings estimates and valuation targets maintained, our TP stays at MYR9.68, with an 8% ESG premium baked in. We reaffirm our view that Gamuda is undervalued, trading at an FY25F P/E of 19x, which is not far from the 16x P/E seen during the 2017 upcycle when its outstanding orderbook was just c.MYR7.4bn vs c.MYR25bn now. Our expectation of job wins of at least MYR10bn pa backs our 3-year earnings CAGR (2023-2026) of 16%.

• Key risk: Slower-than-expected job replenishment trends.

Source: RHB Research - 19 Jul 2024