Review

• Excluding the one-off disposal gain and other extraordinary items totalling RM28.1mn, the FY24 results fell short of both our projections and those of the consensus. Core earnings of RM884.1mn accounted for only 92.4% of our full-year estimates and 93.8% of the street. Lower-than-anticipated profitability margins from overseas construction projects mainly drove this negative deviation.

• YoY, FY24 revenue surged by 62.4%, primarily due to increased progress in the Australian construction projects within the construction division. Alongside this robust revenue growth, core net profit rose by 23.5%, bolstered by higher earnings from overseas construction and domestic property divisions. However, the group’s core net margin declined to 6.6% from 8.7%, largely due to lower profitability in the Australian construction project.

• QoQ, 4QFY24 revenue leapt 89.6%, primarily driven by higher revenue recognition from the existing property projects and stronger progress billing from the construction projects. Correspondingly, the core net earnings grew 21.4% to RM270.7mn, supported by solid earnings performance in the construction division.

• Additionally, the group has proposed a bonus issue of up to 2978.8mn shares, on the basis of one bonus share for every existing share at the time. The entitlement date will be confirmed and announced by the group in due course.

Briefing highlights

Construction

• GAMUDA’s unbilled construction order book stands at RM24.8bn, equivalent to 2.3x FY24 construction revenue, providing robust earnings visibility up to FY28.

• GAMUDA remains confident in achieving its FY24-25F new job wins target of at least RM25bn by the end of CY25, with expectations to reach the upper range of RM30bn-35bn in total outstanding order book by the end of CY24. Management expects job wins to rise further to RM40bn45bn by the end of CY25. This growth will be mainly driven by the finalisation of the Upper Padas Hydro project, alongside the potential rollout of the Penang LRT, various data centre projects, and a renewable energy project in Australia. Notably, GAMUDA secured RM9.3bn in new contracts during FY24. The group also indicated it is currently bidding for several large-scale tenders for mega projects in Taiwan and Australia, such as the White Line Package of the Australian Suburban Rail Link (SRL) while continuing to pursue tenders for the Northern Coastal Highway and the remaining phases of the Pan Borneo Highway.

• Additionally, the group expects improved construction margins, which are currently under pressure, with better-margin local projects coming on board in FY25. Margins in Australia are also anticipated to improve, driven by better economies of scale.

• On a separate note, GAMUDA confirmed no impairment costs will be required for the Rasau Water Treatment Plant project following the recent embankment collapse incident. The work will proceed as planned without impacting the critical project timeline.

Property Development

• GAMUDA’s property division is optimistic about achieving its FY25 sales target of RM6bn. The impressive sales performance of RM4.2bn in FY24 was primarily driven by strong overseas project contributions and several quick-turnaround initiatives, coupled with resilient local property projects. Looking ahead, FY25 sales will be supported by two quick-turnover projects (QTP) in Ho Chi Minh City, Vietnam, namely Springville (GDV of RM1.8bn) and The Meadows (GDV of RM0.3bn), as well as higher contributions from established local townships and ongoing QTPs in Vietnam.

• As of the end of July 2024, the unbilled property sales stood at RM7.7bn.

Impact

• After incorporating the FY24 figures, we have revised our progress billing and margin assumptions for some construction projects in FY25 and FY26 to more accurately reflect the timing of newly secured jobs and the expected margin recovery from more profitable new projects. Consequently, our FY25-26F earnings estimates have been adjusted slightly upwards by 4.8% and 1.3%, respectively.

• Meanwhile, we also introduce our FY27 earnings outlook and present a core net earning growth of 7.2% YoY.

Outlook

• We maintain a positive outlook on the group's ability to secure more large-scale projects in FY25, supported by its strong track record and market position as a leading contender for high-complexity jobs. Additionally, we believe the group's earnings growth momentum will continue, driven by its robust outstanding order book and substantial backlog of unbilled property sales. These are expected to contribute significantly to revenue and profit growth in the upcoming financial year.

Valuation

• Following the earnings revision, we raised our SOP-derived target price to RM10.37 from RM9.94, including a 3% ESG premium based on our 4- star rating. Maintain Buy on the stock.

Source: TA Research - 27 Sept 2024