• BUY with new SOP-based MYR5.83 TP (post bonus issue) from MYR11.67, 22% upside, 2% FY26F (Jul) yield. Gamuda announced that it has entered into a sales and purchase agreement with West Synergy, an indirect subsidiary of MUI Properties (MUIP MK, NR) for the acquisition of 389 acres of freehold land (over four contiguous land parcels) in Springhill, Port Dickson, Negeri Sembilan for a cash consideration of MYR424m (Figure 1). GAM's main intention to acquire the land plots is to develop cloud and data centre (DC) infrastructure - expanding its role beyond a contractor for DCs.
• Valuation, timeline, and details of the land. The existing title of the land is categorised for agricultural use and one of the conditions precedent for the deal to go through is converting the land for industrial use, hence the plan to develop DCs. On further scrutiny, the purchase price of MYR424m or MYR25 per sq ft for the four land plots represents a 6% premium to their market value - which we view is justifiable in light of the DC element in play. The land purchase is expected to be completed by the end of July 2025.
• Balance sheet impact. With the MYR424m land acquisition to be financed by internally-generated funds - GAM's balance sheet should be able to comfortably fund the deal as net gearing may only reach up to 43% from 39% as of end-Oct 2024. Recall that GAM's internal gearing limit is 70%.
• Estimated value to construct the DC. Assuming that 70% of the 389 acres or 272 acres would be earmarked for DC development, we estimate the potential DC capacity to be at 730MW, which could give a job value of MYR15bn. This is based on the benchmark from the DC that GAM is building in Elmina Business Park, which is roughly MYR21m per MW and 2.7MW per acre (as per our calculations). We view that the offtaker would be an international MNC, while we have yet to know the kind of structure which GAM would develop the DC for the offtaker. Recall that GAM is ready to enable eight DC builds at a time, with three currently being constructed.
• Other potential additional elements in play. Aside from developing lands slated for DCs, we understand that the company is venturing into bundling other service components related to DCs - namely water supply and even power (potentially renewable energy (RE)) - which is not foreign to GAM. It has a track record in building and operating the Sungai Selangor Water Supply Scheme Phase 3 and its RE exposure is backed by associate ERS Energy, which is involved in solar plant-related services.
• No changes to earnings estimates pending the deal completion and further details on the leasing model (if applicable) for the DC offtaker. However, we highlight our new TP of MYR5.83 post 1-for-1 bonus issue, which bakes in an 8% ESG premium. We favour GAM's diverse geographical exposure in addition to being relatively undervalued at a FY26F P/E of 19x, not too far from the16-17x P/E range seen during the 2017 upcycle when the outstanding orderbook was just MYR7.4bn vs MYR31.8bn now. Key risks include cost overruns and sluggish awards.

Source: RHB Research - 31 Dec 2024