GAMUDA’s FY24 results fell short of our forecasts, due largely to weaker-than-expected construction margin. The expected contract flows remain strong with expectation of RM15b contract wins in the next six month. As key local projects with better margins accelerate work progress, margin is set to recover gradually over FY25. We trimmed FY25F earnings by 5% but maintain FY26F earnings. It maintains as an OP with TP of RM9.20.

FY24 results underperformed. GAMUDA’s FY24 results missed our expectations with core profit of RM897.0m falling short of our forecast by 19%, but met market consensus (-5%). The main variance against our forecast came largely from the weaker-than-expected construction margin (EBIT margin: actual 5.5% vs. our assumption of 8.0%). No dividend was declared as expected as it usually pays every 1Q and 3Q in the past. It has so far paid 16.0 sen NDPS in FY24.

YoY. Despite revenue surging 61% on higher Gamuda Engineering (GE)’s construction billings from overseas projects especially from Australia, FY24 core profit only grew 4% to RM897.0m. This was due to: (i) higher GE’s overseas revenue (made up 84% of group’s revenue vs. 57% in FY23) which fetched lower profit margin, (ii) deteriorated GE’s local margin (11.5% vs. 14.6% in FY23) as profit recognition from the MRT2 tailed off. Meanwhile, Gamuda Land’s (GL) property revenue (+49%) and profit (+6%) hit record high on strong overseas, particularly quick-turnaround projects (QTP). On the other hand, FY24 results were impacted by stronger MYR by RM20m-RM30m.

QoQ. 4QFY24 revenue jumped 26% led by GE (+36%), particularly Sg Rasau WTP (c.RM300m) and DTI (c.RM600m) while GL’s revenue rose 6%. Correspondingly, 4QFY24 core profit rose 16% to RM271.6m.

Separately, GAMUDA also proposed to undertake an issuance of 1-for- 1 bonus issue, subject to approvals from Bursa, EGM and other relevant authorities.

The key takeaways from the results briefing are as follows:

1. It expects a total of RM15b contract wins in the next six months, including EPCC portion of Upper Padas, the negotiation conclusion of Penang LRT Mutiara Line, several data centre awards and projects in Australia. With this, GAMUDA expects GE’s outstanding order book to rise to RM30b-RM35b by end-CY24 (from previously guided RM30b), before rising further to RM40b-RM45b by end- CY25. We have assumed contract wins of RM14.5b and RM15.0b for FY25 and FY26, respectively, which is comparatively conservative.

2. GE is confident of securing several data centre projects, worth a total of around RM3b, only for hyperscale projects. Meanwhile, GE Australia and DTI have been shortlisted for several major infrastructure and renewable energy (RE) projects, with DTI expecting to close the RE deals soon, not to mention tenders from Taiwan as well.

3. Work progress for Sg Rasau WTP is normally at the main site while investigation into the embankment failure at the ancillary intake site is ongoing. It does not expect overall project completion to be affected as the intake works are not on the project’s critical path.

4. Overall GE’s profit margin is expected to improve in FY25 as work progress for key local projects (with better margin than that of overseas projects) to accelerate which will bring up its revenue contribution to above 50% from 16% in FY24A. It also guided that there are outstanding variation orders not yet recorded for its Sydney Metro West project.

5. GL recorded another record sales of RM5b (+22%) in FY24 with unbilled sales at RM7.7b. It targets RM6b (+20%) new sales in FY25 to be driven by new QTRs, such as Springville (RM1.8b GDV) and The Meadows (RM0.3b GDV), both in Vietnam, coupled with stronger contributions from established local townships and ongoing QTPs in Vietnam.

6. It guided for a higher NDPS of 20 sen for FY25 vs. 16.0 sen paid in FY24.

Forecasts. We trimmed FY25 earnings forecast by 5% to reflect a lower GE’s operating margin of 8.0% from 9.0% previously but keep FY26 net profit forecast unchanged (GE’s operating margin assumption of 9.0%). However, we also raised FY25-FY26 NDPS projection to 20.0 sen from 16.0 sen previously, following with the company’s new guidance.

Valuations. We maintain our SoP-based TP of RM9.20 (see Page 4) that values its construction business at 22x FY26F PER and includes a 5% premium given a 4-star ESG rating as appraised by us (see Pages 6). This is despite our FY25 earnings revision as our valuation is based on FY26 numbers.

We continue to like GAMUDA for: (i) being in the driver’s seat for the Mutiara Line for the Penang LRT and front-runner for the tunnelling job for the MRT3, (ii) its ability to secure new jobs in overseas markets, (iii) its strong war chest after the disposal of its toll highways, (iv) its strong earnings visibility underpinned by a record outstanding order book of RM24.8b, and (v) its inroads into the renewable energy space. Maintain OUTPERFORM.

Risks to our call include: (i) delay in the roll-out of key public infrastructure projects in Malaysia such as the MRT3, which may delay margin recovery (ii) rising input costs and labour shortage, (iii) risks associated with operations in overseas markets such as the change in government policies towards foreign businesses and forex, and (iv) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 27 Sep 2024