• Gamuda has proposed a 1-for-1 bonus issue of shares

• The exercise will improve share trading liquidity and encourage greater participation by investors

• Reiterate BUY rating and raise TP to RM10.15 after rolling forward our valuation base year to FY26

Proposed 1-for-1 bonus issue

Gamuda has proposed to undertake a bonus issue on the basis of 1 bonus share for every existing share held to reward shareholders and improve the liquidity of its shares. The exercise will see issuance of up to 2.98bn new shares, increasing its total share base to 5.43bn shares under a maximum scenario. The proposed bonus issue exercise is expected to be completed in 4Q24.

Increase trading liquidity and reward shareholders

While the bonus issue does not directly impact the stock's fundamentals, we view this corporate exercise positively as it will enhance the trading liquidity and encourage broader investor participation. The post-bonus adjusted share price will be nominally cheaper, encouraging greater market activity. Post bonus issue, the theoretical ex-bonus share price would adjust to RM4.41 (based on today’s current closing price) with our revised target price also adjusted to RM5.08 (from RM10.15).

Reiterate BUY with higher SOP-derived TP of RM10.15

We maintain our EPS forecasts, pending the completion of this corporate exercise. However, we are taking the opportunity to raise our SOP-derived TP to RM10.15 (from RM9.20) after rolling forward our valuation base year to FY26 ahead of the 1QFY25 results next month. Gamuda’s share price has risen 23% over the past 3-months, reflecting strong positive sentiment surrounding its growing orderbook, driven by both infrastructure and data centre (DC) projects. The anticipated inclusion of Gamuda into the FBMKLCI index by end November is likely to serve as the next catalyst. We reiterate our BUY rating on the stock as we continue to like Gamuda for its proven track record in executing infrastructure projects and its pursuit of opportunities in DC-related jobs. Key risks to our BUY call include delays in work progress affecting orderbook recognition, slower contract awards, weaker-than-expected property sales and project cost overrun.

Source: Philip Capital Research - 8 Nov 2024