The EPCC contract for the Upper Padas Hydropower Plant has been confirmed with expected revenue for GAMUDA projected at RM2.29b based on its 75% stake, and a PBT margin of 10% for this project. We are positive on this project, which is widely anticipated as it was previously awarded the concession, but pending finalisation of the EPCC contract. This brings its outstanding order book to RM31.0b, nearing its end-CY24 target of RM30b-RM35b. We maintain OP rating at a TP of RM9.20.

EPCC contract for Upper Padas Hydropower Plant confirmed. Last Friday, GAMUDA announced that the 75:25 JV between GAMUDA and Conlay Construction Sdn Bhd (a construction and property development company) has been appointed by the concessionaire Upper Padas Power Sdn Bhd (UPPSB) as the total development contractor for the 187.5MW Ulu Padas Hydroelectric Power Plant in Tenom, Sabah. The contract value is RM3.048b with the expected revenue to GAMUDA of RM2.29b based on its 75% stake in the JV.

The project is expected to take six years to complete, with the scheduled commercial operation date (SCOD) to be on or before 31 Dec 2030.

GAMUDA has an indirect interest of 45% in UPPSB via UPP Holdings Sdn Bhd (UPPHSB), a JV comprising GAMUDA (45%), Sabah Energy Corporation Sdn Bhd (40%, a Sabah state government-linked company) and Kerjaya Kagum Hitech JV Sdn Bhd (15%, a power plant construction company).

Third contract in FY25. We are positive on this contract win although it is largely anticipated given GAMUDA's 45% stake in the concession.

This is a multiple-income-source project as it provides GAMUDA with 40 years of recurring concession income coupled with this EPCC construction earnings. In addition, there is a potential water plant package and floating solar earnings from end-2031 (refer to our update Hydropower Concession Confirmed dated 09 Sep 2024). With this EPCC contract, its YTD contract wins have risen 58% to RM6.2b and raised its outstanding order book by 8% to RM31.0b against its targeted outstanding order book of RM30b-RM35b by end-CY24. The guided PBT margin for this project is 10%.

Forecasts. Maintained with new job win assumption retained at RM14.5b and RM15.0b for FY25 and FY26, respectively, supported by a pipeline that includes the Penang LRT Mutiara Line, several data centre awards, and projects in Australia, for the remainder of FY25.

Valuations. We maintain our SoP-based TP of RM9.20 (see Page 3) that values its construction business at 22x FY26F PER and includes a 5% premium given its 4-star ESG rating as appraised by us (see Page 6). We have already factored in RM0.24/SoP share for this hydropower plant concession.

Investment case. We like GAMUDA for: (i) being in the driver's seat for the Mutiara Line of the Penang LRT, (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 RM31.0b (excluding Penang LRT), and (v) its inroads into the renewable energy space. Maintain OUTPERFORM.

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

Source: Kenanga Research - 28 Oct 2024