• Maintain BUY and MYR5.83 TP, 22% upside with 2% FY25F (Jul) yield. Gamuda's 60%-owned subsidiary, SRS Consortium, has been awarded a MYR8.3bn contract by Mass Rapid Transit Corp (MRT Corp) for Segment 1 (Silicon Island A to Komtar) of the Penang Light Rail Transit (LRT) Mutiara Line (Penang LRT). The job scope includes the design and construction of elevated guideways, stations, a depot at Silicon Island A for light and heavy maintenance, at-grade park-and-ride facilities and external works.
• Further details of job award. The contract specifically entails the construction of a 23.7km elevated railway viaduct from Komtar to Silicon Island A, with 19 elevated stations plus the shell for a provisional station in Silicon Island A. Segment 1 of the Penang LRT is targeted to be completed within 72 months from the notice to proceed, which could be by 2031. We estimate the PBT margin of the Penang LRT Segment 1 job to be 8%.
• Orderbook impact. Taking into consideration GAM's effective 60% share from the latest job win (valued at MYR5bn), its outstanding orderbook is estimated at MYR37bn, with YTD-FY25 new jobs wins standing at about MYR13.8bn (vs our FY25F job replenishment target of MYR25bn). Based on our estimates, jobs from Malaysia now account for 40% of GAM's total orderbook, which may facilitate its overall gradual margin improvement as domestic jobs have higher PBT margins, in general.
• What is next for the Penang LRT? With the total project cost of the Penang LRT estimated to be MYR13bn - while Segment 1 costs MYR8.3bn, the remaining segments - Segment 2 (Macallum Station in Georgetown to Penang Sentral) and Segment 3 (systems turnkey package) may cost MYR3bn and MYR2bn, in our view. The tender for Segment 3 was advertised in late 2024, with a selection process taking place for about four months. Meanwhile, the tender for Segment 2 is targeted to be called in July, with awards expected to take place in early 2026. We do not discount the possibility of GAM participating in tenders for Segments 2 and 3 of the Penang LRT, premised on the group's track record in Mass Rapid Transit (MRT) 1 and MRT 2.
• We make no changes to our earnings estimates as the latest job win is within our FY25 job replenishment assumption of MYR25bn. As such, our SOP-derived TP of MYR5.83 (which bakes in an 8% ESG premium) remains as is. We reiterate that Gamuda remains relatively undervalued - the counter is trading at 18.9x FY26F P/E, ie near the 16x P/E recorded during the 2017 upcycle when its outstanding orderbook was worth just MYR7.4bn (vs the latest estimated MYR37bn orderbook).
• Rerating catalysts include earlier-than-expected wins for GAM's AUD25bn renewable energy projects pipeline (over the next two years) in Australia. These will comprise wind, solar and pumped hydropower, among others.
• Key downside risk: Slower-than-expected job replenishment.

Source: RHB Research - 14 Jan 2025