Secured Letter of Notice for the Ulu Padas Hydroelectric Project

A joint venture led by GAMUDA, Upper Padas Power Sdn Bhd (UPPSB), has received a Letter of Notice (LON) from the Energy Commission of Sabah to undertake the Ulu Padas Hydroelectric Project (UPHP). This project, with an installed capacity of 187.5MW, involves the construction of a hydroelectric dam in the Tenom and Sipitang districts of Sabah. Upon completion, it is expected to generate an average of 1,052GWh of clean energy annually.

To recap, UPPSB is a joint venture formed on 30 October 2023 by GAMUDA, Sabah Energy Corporation Sdn Bhd, and Kerjaya Kagum Hitech JV Sdn Bhd (KKHJV), holding stakes of 45%, 40%, and 15%, respectively. The JV was established primarily to execute the UPPHP under a private finance initiative.

The project is slated for completion within six years, targeting the commercial operation date by the end of 2030. Additionally, the LON allows UPPSB to propose and implement a floating solar solution integrated into UPHP, with a projected completion date at the end of 2031.

Our Views

We are optimistic about these recent developments, as the project is set to bolster Gamuda’s order book growth and enhance earnings visibility. While the construction project's exact value has not been confirmed, the Engineering, Procurement, Construction, and Commissioning (EPCC) works are expected to cost approximately RM4bn, including interest during construction. This was disclosed in the announcement on 30 October 2023. It is anticipated that Gamuda and KKHJV will be awarded the EPCC contract as turnkey contractors by the end of 1QCY25.

UPPSB is expected to enter into a 40-year power purchase agreement with the offtaker, Sabah Electricity Sdn Bhd. According to the announcement, Gamuda stated that UPHP is anticipated to generate more than RM400mn in annual revenue upon completion. This implies a tariff rate of around RM0.38/kWh.

Notably, GAMUDA’s total YTD new job wins amounted to around RM10.0bn, with an outstanding order book of approximately RM25bn, equivalent to 4.5x FY23 construction revenue.

Impacts

No changes to our FY24-26F earnings forecasts

Valuation

We maintain our SOP-derived target price of RM9.94, which includes a 3% ESG premium based on our 4-star rating. Maintain Buy call on the stock.

Source: TA Research - 9 Sept 2024