KEY INVESTMENT HIGHLIGHTS

• RM3.05b Ulu Padas Hydro project awarded; Gamuda's share RM3.23b
• Project expected to be completed in 7 years; PBT margin 10%
• Gamuda to enjoy recurring income post COD, with 40-year PPA
• The outstanding order book now stands at RM30.99b
• Maintain BUY with an unchanged TP of RM9.64

Ulu Padas hydro project sealed. Fresh from its mega project win in Taiwan, Gamuda has added another significant project into its books. It has officially been awarded the RM3.05b contract to build the 187.5MW Ulu Padas Hydroelectric Power Plant in Sabah, together with its joint venture (JV) partner Conlay Construction Sdn Bhd. Gamuda has a 75% interest in the unincorporated JV, indicating that Gamuda's share of the contract is RM2.29b.

Details of the project. The job scope involves the design, construction, testing and commissioning of a 187.5MW hydroelectric plant involving a roller-compacted concrete dam, a main and secondary powerhouses, water conveyance system, project access, and other permanent facilities which include a 275kV switchyard, 33kV sub-transmission line, workshop, stores and operation facilities, and a residential village. The construction is expected to take about six years as the scheduled commercial operation date (COD) is on or before 31st December 2030. Management has guided for a PBT margin of 10%.

To enjoy recurring income after COD. The project was awarded to the JV by Upper Padas Power Sdn Bhd (UPPSB), of which Gamuda has a 45% indirect interest through UPP Holdings Sdn Bhd. Post COD, the power plant is expected to generate a revenue exceeding RM400m per annum. There is a 40-year power purchase agreement with Sabah Electricity Sdn Bhd as the off taker, which will provide Gamuda with its portion of the recurring income.

RM30b to RM35b of order book by end 2024. Gamuda's outstanding order book now rises to RM30.99b. The group will potentially exceed its RM35b order book target by the year end, which we expect will come from the Penang LRT contract (RM4.56b based on Gamuda's 60% in SRS Consortium, hyperscale data centers (approximately RM3b), and renewable energy projects in Australia. Gamuda is also in the midst of tendering for the line wide package for the Suburban Rail Loop (SRL) in Melbourne and several packages under the Sydney Metro West project. Management expects the order book to grow to RM40b-RM45b by CY2025, after taking into account an estimated burn rate of RM12b to RM13b annually.

Earnings estimates. We maintain our earnings projections as the new win is within estimates.

Target price. We maintain our TP at RM9.64, derived by pegging Gamuda's FY26F EPS of 52.1 sen to a PER of 18.5x, based on +1SD above its four-year mean from FY15 to FY18 during the previous construction upcycle.

Maintain BUY. We are positive on Gamuda's Ulu Padas hydroelectric power plant win, which brings the group closer to a new high of RM35b order book target by the year end. The group remains our favourite for the construction sector, backed by its successful overseas expansion plan; its consistency in clinching sizeable jobs and it being a front runner for most mega projects in Malaysia. Being a premium builder of data centres, the group now focusses only on hyperscale data centres, underpinning sizeable order book replenishments. All in, we are maintaining our BUY recommendation on Gamuda.

Source: MIDF Research - 28 Oct 2024