Secured Xizhi Donghu Mass Rapid Transit (MRT) Project of NTD32bn

GAMUDA, in an unincorporated joint venture with Taiwan-based MiTAC Information Technology Corp (MiTAC) and Dong Pi Co. Limited (Dongpi), holding 75%, 15%, and 10% stakes respectively, has won a contract worth NTD32bn (around RM4.3bn) from the Department of Rapid Transit System, under the New Taipei City Government. The project involves designing and constructing a 5.8km railway line, including six elevated stations, connecting Taipei's Neihu District and New Taipei City's Xizhi District as the main contractor.

The project aims to improve transport connectivity between Xizhi and the wider New Taipei and Taipei areas, addressing the need for a more modern and efficient transit system amid population growth. Additionally, the joint venture is committed to undertaking further works, valued at approximately NTD80bn (c.RM10.8bn), upon instructed by the New Taipei City Government. These works will include the Xizhi Donghu Line Maintenance Depot and system, and track extensions for the Keelung Line MRT and Minsheng Line MRT. This additional contract is expected to be awarded separately within 3-7 years.

To note, MiTAC, a Taiwan-incorporated private limited company with a paidup capital of NTD1.7bn (around RM229mn), was established in October 2010 and focused on AIoT solutions for Smart Cities and Digital Transformation. As a subsidiary of the MiTAC-Synnex Group, MiTAC is deeply involved in Taiwan's transportation infrastructure, providing communication, power supply, signalling, and automated fare collection systems.

DongPi, another partner in this venture, is a private limited company with a paid-up capital of NTD1.1bn (around RM146mn). Specialising in civil construction, particularly tunnel engineering, marine infrastructure, road and bridge construction, and track laying, DongPi has completed numerous highprofile projects, including the Huilong Tunnel, Taoyuan’s LNG terminal, and the Kinmen marine bridge.

This design and build project is expected to generate an effective stake revenue of NTD24bn (c.RM3.2bn) to GAMUDA, with the project slated for completion within 7 years.

Our Views

Following GAMUDA's second new contract win in FY25, the total new job wins have risen to RM13.2bn since FY24 (excluding the Upper Padas Hydro Project). This accounts for 52.8% of the group’s new job replenishment target of RM25bn for FY24-25. As a result, GAMUDA’s total outstanding orderbook has increased to an estimated RM28.7bn, representing 2.7x FY24 construction revenue. Meanwhile, we are also positive about the additional work, worth RM10.8bn, which is expected to be finalised in the coming years, further bolstering the existing orderbook.

RM10.8bn, which is expected to be finalised in the coming years, further bolstering the existing orderbook.

Assuming a PBT margin of 8%, as guided by the group, this design and build contract is anticipated to contribute an effective net profit of approximately RM194.6mn over the construction period.

Impacts

Looking ahead, we expect GAMUDA’s orderbook to be further fuelled by the finalisation of the Upper Padas Hydro Project (c.RM4bn) and Penang LRT Segment 1 (c.RM7bn), alongside two potential data centre projects. With these opportunities in sight, we believe the group is poised to surpass its RM25bn new job replenishment target in FY24-25F. Consequently, we have raised our FY25 new job replenishment assumption from RM15bn to RM20bn to reflect this strong orderbook growth. As a result, we have adjusted our FY25-27F earnings estimates upwards by 4.0%, 4.8%, and 6.2%, respectively.

Valuation

Given the earnings adjustment, we have arrived at a marginally higher SOPderived target price of RM10.98, inclusive of a 3% ESG premium based on our 4-star rating. The potential inclusion of GAMUDA in the KLCI index by this year's end presents a good buying opportunity on the back of emerging additional value. Maintain a Buy call on the stock.

Source: TA Research - 23 Oct 2024