• Still BUY, with new SOP-based MYR10.52 TP from MYR9.79, 24% upside and c.2% FY26F (Jul) yield. Gamuda, in a JV with Conlay Construction, has been appointed as the total development contractor by Upper Padas Power for the 187.5MW Upper Padas Hydroelectric (UPH) project in Sabah. The contract is worth MYR3.1bn, with GAM’s 75% share being MYR2.3bn. This latest job is GAM’s third contract win for FY25.

• Job scope for the UPH project covers the design, construction, testing, and commissioning of the hydroelectric plant. This encompasses a roller- compacted concrete dam, powerhouses, water conveyance system, a 275kV switchyard and 33kV sub-transmission line, among others. Tenure of the project would be six years as the scheduled commercial operation date is slated to be on or before 31 Dec 2030. Profitability wise, we expect the PBT margin for the construction of the UPH project to be around 10%.

• Orderbook impact. The latest contract award brings GAM’s outstanding construction orderbook to MYR31bn – already surpassing the MYR30bn before end-CY24. As for YTD FY25 new jobs wins – GAM has clinched c.MYR6.2bn worth of new contracts (including the UPH project) vs our FY25 job replenishment target of MYR20bn. There are more projects related to UPH which may arise in the coming quarters or next FY, in our view – namely the water supply scheme and also the floating solar solution for UPH.

• Target orderbook of MYR40-45bn by end-CY25 seems achievable. GAM's latest outstanding orderbook is MYR31bn. Assuming a burn rate of MYR11bn from Nov 2024 to end-Dec 2025, GAM needs to win another MYR20bn of new contracts from Nov 2024 until Dec 2025 to meet the lower end of the orderbook target range of MYR40bn by end-CY25. Out of this MYR20bn that needs to be secured in the next 14 months, we estimate MYR14bn may be clinched between now and end-Jul 2025 – potentially including the Penang Light Rail Transit (estimated at MYR4.8bn based on GAM's 60% share in SRS Consortium), the water supply scheme for UPH project (likely c.MYR3bn), with the remaining coming from a mix of local data centre jobs and renewable energy projects in Australia.

• No changes to earnings estimates as the latest job win is within our FY25 job replenishment assumption of MYR20bn. Given we are at the end of the first quarter, 1QFY25, we are taking the opportunity to roll forward our valuation to FY26F from FY25F. As a result, we arrive at a new SOP-derived TP of MYR10.52, which bakes in an 8% ESG premium. We reaffirm our view that Gamuda remains undervalued, trading at 20x FY25F P/E – close to the 16- 17x P/E seen during the 2017 upcycle when its outstanding orderbook was just c.MYR7.4bn vs c.MYR31bn now.

• Rerating catalysts: Faster-than-expected wins for domestic jobs (which fetch higher margins) in the infrastructure and data centre space.

• A key risk includes slower-than-expected job replenishment trends.

Source: RHB Research - 28 Oct 2024