• Keep BUY and MYR9.79 TP, 15% upside and c.2% FY25F (Jul) yield. Gamuda announced that its unincorporated JV with two Taiwan companies (MiTAC Information Technology Corp and Dong Pi Co) clinched the job to design and build the Xizhi Donghu Mass Rapid Transit (MRT) turnkey project in Taiwan from the Department of Rapid Transit Systems of the New Taipei City Government worth MYR4.3bn (GAM’s 75% effective share: MYR3.2bn). The job entails 5.8km of elevated viaducts and trackwork, six elevated stations and system works for a seven-year period with a c.8% PBT margin.

• On top of the MYR4.3bn Xizhi Donghu MRT Line turnkey job, the JV is obligated when instructed by the New Taipei City Government to undertake an already determined additional works estimated at c.TWD80bn (or c.MYR10.8bn of which MYR8.1bn goes to GAM). The additional works cover the Xizhi Donghu Line maintenance depot plus the system and track works for two extension lines which are the Keelung Line MRT and Minsheng Line MRT. Finalisation of the said additional works is upon instruction from the Taipei City Government and is expected to take place before the end of the MYR4.3bn Xizhi Donghu MRT job which is not more than seven years from now and could be as early within the next three years.

• Orderbook impact. GAM’s latest outstanding orderbook is estimated to be at c.MYR28.7bn (closing in on its MYR30bn target by end CY24) while new job wins for FY25 stand at c.MYR4bn vs our FY25F job replenishment target of MYR20bn. These figures do not include the MYR8.1bn of estimated additional works for the Xizhi Donghu Line maintenance depot, Keelung Line MRT and Minsheng Line MRT as the awards and billings are only expected to take place within the next three years, the earliest.

• Immediate to medium term potential job wins include the estimated Penang Light Rail Transit (estimated at MYR4.8bn based GAM’s 60% share in SRS Consortium), the Upper Padas Hydroelectric project (estimated at MYR3bn) and the water supply scheme linked to it (Figure 8). We also do not discount some wins from the data centre (DC) space (which we view can be>MYR1bn) as GAM’s two industrialised building system factories are able to cater to between 200MW and 300MW of DCs a year. So far GAM only has around c.92MW of DCs being constructed at the moment.

• No changes to our earnings estimates as the latest job win is within our FY25 job replenishment assumption of MYR20bn. As such, our SOP-derived TP of MYR9.79 (which bakes in an 8% ESG premium) remains unchanged. Our expectation of job wins of >MYR10bn pa backs our three-year earnings CAGR (FY24-27F) of 16%. We reaffirm our view that GAM remains undervalued, trading at 19.9x FY25F P/E (vs >20x for its peers) – not too far from the 16x P/E seen during the 2017 upcycle when outstanding orderbook was just c.MYR7.4bn vs c.MYR29bn post new job win. Rerating catalysts include more frequent wins of new DC jobs in Malaysia. A key risk is slower- than-expected job replenishment trends.

Source: RHB Research - 23 Oct 2024