KEY INVESTMENT HIGHLIGHTS

• Acquiring 389.7-acre land in Port Dickson for RM424.4m, intended for cloud and data centre infrastructure
• May translate to a DC size of 500MW to 600MW
• Strong order book at RM31.8b, well within CY24 target of RM30b to RM35b
• Maintain BUY with a revised TP of RM5.42, adjusted for bonus issue

Purchase 400 acres of land in PD. Gamuda, via its wholly-owned indirect subsidiary Gamuda DC Infrastructure Sdn Bhd, has entered into a sales and purchase agreement with West Synergy Sdn Bhd for acquisition of four contiguous plots of land with a net land area of approximately 389.7 acres in Port Dickson at a purchase price of RM424.4m. West Synergy is a 60:40 JV between subsidiaries of MUI Properties Bhd and Chin Teck Plantations Bhd.

Details of land parcels and SPA. The gross land area for the four parcels of land (Lots 8313, 8314, 8315 and 8316) is 401.2 acres, which includes 11.5 acres of road reserves to be surrendered. Removing this, the net land area is 389.7 acres. It is located within the Springhill Industrial Park, about 13km southwest of Seremban. The existing land title is for agriculture and part of the conditions precedent to the SPA is for the conversion of land use to industrial. The acquisition is expected to be completed by the end of July 25. Another condition precedent is for the amalgamation of Lot 8314, 8315 and 8316 into a single lot and held under a single-issue document of title. The parcels of land come with oil palms and are provided with basic facilities such as roads, drains, high voltage electricity, water supply and telecommunication facilities. There is also an existing pond on Lot 8313.

Land for cloud and DC infrastructure. Gamuda's intended plan for the parcels of land acquired is for developments in relation to cloud and data centre infrastructure. MUI Properties stated in a press release that Gamuda is acquiring the land for its High-Tech Digital Infrastructure Hub. We view that this is in line with the group's latest strategy of a differentiated data centre delivery whereby Gamuda provides an integrated offering of "Bundled Land + Water + Power (RE)" that is able to offer better speed to market, coupled with its Digital IBS capabilities.

Based on the land size of 389.7 acres, we estimate that it could cater for about 500MW to 600MW of data centre developments, which may translate to a construction size of RM15.0b to RM18.0b. Management is optimistic on the pipeline of data centre projects and has been expanding its capacities to cater for the stronger demand. It has recently expanded both its Digital IBS facilities, and the group now has eight DC teams ready for up to eight simultaneous DC construction.

RM40b to RM45b order book by end 2025. Gamuda's outstanding order book currently stands at RM31.8b, well within management's target of RM30b to RM35b by end CY2024 and on track for its RM40b to RM45b target by end CY2025, after taking into account an expected burn rate of RM12b to RM13b annually. Upcoming project awards that are expected to provide an extra boost to Gamuda's already bulging order book include the Penang LRT, a water supply scheme in Sabah, and the potential conversion of several renewable energy early contractor involvement (ECI) into EPCC contracts in Australia.

Earnings estimates. We are making no changes to our earnings estimates pending more details on the development plan on the land.

Target price. We are also adjusting our TP to RM5.42 from RM10.68 previously after taking into account Gamuda's 1-for- 1 bonus issue on 23 December. As such we peg the group's FY26F EPS of 25.8 sen to a PER of 21x, 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 recent inclusion into the FBM KLCI.

Maintain BUY. We are positive on Gamuda's proposed acquisition, which marks a step forward in its differentiated data centre offering. 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. All in, we are maintaining our BUY recommendation on Gamuda.

Source: MIDF Research - 31 Dec 2024