• Maintain BUY and MYR5.83 TP, 38% upside with 2% FY25F (Jul) yield. The latest move by the US government to restrict the export of artificial intelligence (AI) chips to countries like Malaysia is expected to have a limited impact on Gamuda, in our view. GAM's major data centre (DC) clients have their primary headquarters in Tier-1 countries such as the US, and can apply for Universal Validated End User (UVEU) status, enabling larger quantities of AI chips to be brought into Tier-2 countries like Malaysia. Hence, we believe that the latest selldown on GAM is overdone.
• Looking ahead, we expect GAM to secure a MYR15-20bn project from the 389-acre parcel of land in Negeri Sembilan. We also do not rule out GAM's involvement in the upcoming phases of DCs in Elmina Business Park, with potentially another 250MW to be added on to the 80MW currently being constructed for the first phase. GAM now only has 6% of its total orderbook coming from DCs spread over three jobs (or 25% of its Malaysia orderbook) while overseas jobs (with no DCs) account for 66%.
• Upcoming job likely to be from client from Tier-1 countries. While the client for the DC development for the land in Negeri Sembilan has yet to be announced - we view that the entity would be from any Tier-1 country (or ultimately headquartered there). This is premised on the fact that current DC clients mostly (if not all) have headquarters in Tier-1 countries - so we envisage the same to apply for potential clients related to DC job tenders.
• In the worst-case scenario where the new DC jobs (estimated to be worth at least MYR15bn) have clients from Tier-1 countries but are unable to obtain the UVEU status - GAM's potential wins overseas would likely more than offset the risk of losing DC jobs. For instance, a win rate of 20% on its AUD25bn worth of renewable energy tenders in Australia over the next two years is enough to yield AUD5bn (or MYR15bn) worth of jobs. For railway related jobs, GAM was shortlisted for AUD4bn worth of jobs in Australia and is awaiting the award of a MYR8bn contract in Taiwan within the next three years (Figure 1). These jobs would total up to MYR35bn - over double the lower end of DC job values (of MYR15bn) expected to be won.
• Assuming the non-DC job wins fully materialise and more than offset any total loss from expected DC jobs - the only major risk we flag is the inability of boosting its NPM, as DC jobs tend to have higher profitability.
• No changes to earnings estimates. Hence, our SOP-derived TP of MYR5.83 (which bakes in an 8% ESG premium) remains put. We deem that a blended target P/E of 23.5x for its domestic and overseas construction arm is reasonable, in view of its diverse job portfolio. GAM is trading at a FY26F P/E of 16.7x, which is very near to the 16x observed during the 2017 construction upcycle (and had no DC and overseas factor at that time) - which we view is unjustified, based on the GAM's robust prospects as highlighted above. A key downside risk: Slower-than-expected job replenishment trends.

Source: RHB Research - 20 Jan 2025