• Maintain BUY and SOP-based MYR5.83 TP, 33% upside with 2% FY26F (Jul) yield. Gamuda has signed an exclusive arrangement with Perbadanan Kemajuan Negeri Perak (PKNPk) to develop infrastructure that addresses the issue of critical water storage in north Perak. This scheme involves facilitating the transfer of raw water from Sungai Perak to Bukit Merah, and developing the requisite infrastructure for treated water distribution, ensuring long-term water sustainability for the region.
• No potential contract value and rough timeline was mentioned but in Jun 2024, the Government agreed in principle to approve an estimated allocation of MYR4bn for the implementation of the raw water transfer project from Sungai Perak to the Bukit Merah Dam in Kerian, part of which will be used to supply treated water to Penang. Budget 2025 also highlighted this project. GAM's role is yet to be defined, ie whether it will be an EPCC contractor only, or execute the project via a build-operate-transfer agreement. That said, GAM and PKNPk will proceed with an official JV agreement at a later stage. The Ministry of Energy Transition and Water Transformation (PETRA) has issued a public tender for the appointment of a consultant for physical works for the Perak-Penang raw water transfer project, in Dec 2024.
• Gamuda is no stranger to water infrastructure. PKNPk and GAM will jointly manage all components of this development including overseeing the design, civil and structural engineering, utilities, risk mitigation and the implementation of local workforce and technology training programmes. We foresee minimal execution risks due to GAM's track record in water projects - namely the Sungai Selangor Water Supply Scheme Phase 3, including the water treatment plants in Rasa and Bukit Badong together with the Stormwater Management and Road Tunnel (SMART). Note that GAM is currently involved in the Sungai Rasau Water Supply Scheme Stage 1 and the EPCC contract of the Ulu Padas Hydroelectric project. These projects have a cumulative value of at least MYR6bn.
• All in, we envisage Gamuda as an emerging key water infrastructure player in Malaysia - putting it in a strategic position to clinch other water-related projects. Some of the projects include the Selangor State Government's proposal to build an underground tunnel system to manage rain overflow from Kuala Lumpur to prevent flooding (estimated at MYR6bn) and Stage 2 of Sungai Rasau Water Supply Scheme (estimated at MYR2bn).
• No changes to earnings forecasts. As such, our SOP-derived TP of MYR5.83 (which bakes in an 8% ESG premium) remains as is. We reiterate that Gamuda remains undervalued - it is trading at 17.3x FY26F P/E, near the 15-16x P/E range seen during the 2017 upcycle when its outstanding orderbook was just MYR7.4bn vs MYR37bn now. Rerating catalysts include the potential democratisation of artificial intelligence or AI, which could spark the demand for data centres (which leads to more construction opportunities for GAM).
• Key risks: Slower-than-expected job replenishment.

Source: RHB Research - 6 Feb 2025