KEY INVESTMENT HIGHLIGHTS

• Digital infra to be Gamuda's third core business after construction and property
• JV with DNeX to deliver GDC services; acquires 20% stake in Cloud Space
• Outstanding order book on track to RM35b by end-2024
• Maintain BUY with a revised TP of RM10.68

Entry into digital infra business. Construction giant Gamuda has marked its entry into the digital infrastructure business. Its wholly owned subsidiary Gamuda Technologies Sdn Bhd has forged a strategic partnership with DNeX Solutions Sdn Bhd to form a 50:50 JV that will deliver Google Distributed Cloud air-gapped services (GDC services) to the government and private clients.

Details of the JV. DNex Solutions is a wholly owned subsidiary of Dagang NeXchange Bhd as the vehicle to undertake and deliver the GDC services. The Gamuda-DNeX JV will be authorised to act as the sole provider of the GDC services, which is said to be targeting a RM11b market across federal and state governments, and the private sector such as financial service institutions and security-sensitive organisations. GDC services is a fully managed cloud experience for organisations that require complete isolation to meet stringent sovereignty and regulatory requirements. This will involve procurement of GDC hardware, customised AI solutions, applications development, ongoing client support, data migration and infra maintenance.

20% stake in Cloud Space. In a separate bourse filing yesterday, Gamuda announced that it had entered into an agreement to acquire a 20% stake in Cloud Space Sdn Bhd for up to RM18m, which will be disbursed in three tranches. Cloud Space is an award-winning Google Cloud Premier Partner, which provides solutions and services for Google Cloud, Google Workspace, Chrome Enterprise, and Google for Education, to government and private sectors in Malaysia. Gamuda will have the first right to form any equity partnership with Cloud Space for any new large scale cloud projects in Malaysia, with a minimum equity stake of 50%. Gamuda said the acquisition aims to accelerate its digital ambitions in cloud and AI technologies, adding that Cloud Space's deep expertise in cloud engineering, augments Gamuda's in-house technology and digital capabilities in delivering large-scale complex engineering and construction projects.

A new business segment. Gamuda intends to make digital infrastructure as its third core business, after construction and property development. Other than its involvement in building data centres, we believe the JV with DNeX and the acquisition of a stake in Cloud Space will enable Gamuda to ride the growing AI wave. This is evident in plans by global hyperscalers to invest in Malaysia, notably USD2b by Google to house its data centre in Malaysia as part of the Google Cloud region.

Earnings estimates and TP. While we make no changes to our earnings estimates for now, we are upgrading our TP to RM10.68 from RM9.64 previously, derived by pegging Gamuda's FY26F EPS of 52.1 sen to a PER of 20.5x, based on +2SD above its long-term mean, which we believe is justifiable given its growing prospects in the construction space with an all-time high outstanding orderbook of RM31.4b and its upcoming inclusion into the FBM KLCI started 23rd December.

Maintain BUY. We are sanguine on Gamuda's venture into the digital infrastructure space, leveraging on the strengths from its AI Academy. Gamuda 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. As Gamuda continues to tender for traditional infrastructure projects in Australia, it is also pursuing opportunities in RE projects, which are now gaining traction in Australia. All in, we are maintaining our BUY recommendation on Gamuda.

Source: MIDF Research - 11 Dec 2024