• BUY with new MYR9.79 TP from MYR9.68, 22% upside, 3% FY25F yield. Gamuda’s FY24 (Jul) core net profit of MYR912m (+6% YoY) met ours but missed Street’s estimates at 100% and 95% of full-year projections. We continue to favour GAM for steady flow of job wins (target to hit outstanding orderbook of c.MYR30bn by end of CY24) while higher-margin domestic jobs may start contributing higher. Our expectation of job wins of >MYR10bn pa backs our three-year earnings CAGR (FY24-27F) of 16%.

• GAM’s FY24 construction PAT of MYR501.3m (<1% YoY increase) was due to the high portion of low-margin overseas jobs (62% of segmental PAT). Construction PAT margin remains at a low level of 4.7% in FY24 (FY23: 9%). We expect overall construction margins to gradually trend upwards amidst higher contribution of upcoming higher-margin local jobs.

• The property segment saw a 31% YoY growth in PAT for FY24 backed by a combination of strong sales from local key townships (Cove and Gamuda Gardens) and quick turnaround projects (QTPs) such as Eaton Park and Elysian in Vietnam. New QTP projects in Vietnam (Springville and Meadows with total GDV of MYR2bn) may propel the segment’s growth in addition to the unbilled sales of MYR7.7bn (end-FY24) vs MYR6.7bn (end-FY23).

• Job prospects. With an outstanding orderbook of MYR25bn as of end-July and an assumed burn rate of MYR5bn from July to end-2024 – we expect GAM to secure MYR10-12bn of new jobs to hit an orderbook level of c.MYR30-32bn by end of CY24. We project it to clinch another MYR20bn of new jobs in CY25 to achieve an orderbook level of c.MYR40bn (assuming a 12-month MYR12bn burn rate) by the end of that year. As such, another c.MYR10bn of jobs could be potentially won between Jan-Jul 2025, in our view. Anticipated jobs aside from the Penang Light Rail Transit Mutiara Line include renewable energy projects in Australia, water supply scheme for Ulu Padas Hydro project, and domestic data centre jobs among others.

• Earnings. We impute a stronger MYR (with a 10% appreciation) with respect to currencies (AUD, TWD, SGD, VND, and GBP) for its overseas projects. Additionally, we factor in a higher job replenishment assumption for FY25 and FY26 at MYR20bn (from MYR15bn) and MYR15bn (from MYR10bn) based on the aforementioned prospects. A net result of these adjustments leads to a +2%/+3% change in our FY25/26F earnings. Our FY27F earnings are also introduced, which assumes a MYR10bn job replenishment target.

• Post earnings adjustment, we derive a new SOP-derived TP of MYR9.79 (from MYR9.68) which bakes in an 8% ESG premium. Our indicative TP ex- bonus issue (one for one) that may conclude in 4QCY24 is MYR4.90. We reaffirm our view that Gamuda remains undervalued, trading at a FY25F P/E of 18.7x which is not far from the 16x P/E seen during the 2017 upcycle when outstanding orderbook was just c.MYR7.4bn vs c.MYR25bn at end-Jul 2024. Rerating catalysts include frequent wins of new data centre jobs in Malaysia.

• A key risk is slower-than-expected job replenishment trends.

Source: RHB Research - 27 Sep 2024