Investment Highlights

• We downgrade Gamuda to a HOLD (from BUY) as the risk- reward is balanced, in our view. We cut our FY24F earnings by 10% but keep FY25-26F unchanged. Our SOP-derived fair value (FV) of RM6.54/share and our 4-star ESG rating remains unchanged.

• 9MFY24 net profit of RM640mil (+13.6% YoY) was below expectations, making up 65% of our earlier forecast and consensus. A DPS of 10sen was announced, a growth of 67% YoY.

• Management stated earlier that 2H will be stronger on work ramp-up and lumpy recognition of property revenues. That said, 3QFY24’s net income only grew by 7% YoY, which is well below 1HFY24’s YoY net income growth of 19%. The upcoming 4QFY24 must be very strong (>35%) in order to meet market expectations. We think this is a stretch, but management remains sanguine that they are on track.

• Engineering and Construction (E&C) revenue grew 88% YoY in 3QFY24 as work accelerated across overseas jobs. E&C profit PBT was down 23% YoY in 3QFY24 due to legacy projects greatly affected by inflationary pressures and other challenges. Property PBT rose marginally by 1% YoY in 3QFY24 on stronger billings.

• The order book for E&C is RM24.2bil (flat QoQ) with total job wins of RM4.9bil YTD. There are still many big projects up for tendering in the local scene, but they are taking much longer than anticipated to follow through, most notably the KVMRT3. Management is more optimistic on its Australian and Taiwan prospects.

• The property segment recorded pre-sales of RM2.3mil YTD (+21% YoY), and management is sticking to its FY24F target of RM5bil. Unbilled sales was RM6.7bil.

• Management said profit margin will trend higher going forward as legacy projects expire and newer projects with higher yields will materialise. Furthermore, inflationary pressures and the cost of financing have eased.

• Net gearing has increased to 0.35x from 0.25x as at the end of 2QFY24. This is expected on increased jobs undertaken. The T-12M ROE is at 16.8%.

• Management alludes there will be lots of announcements in the next three months. The Penang Mutiara LRT, Upper Padas hydroelectric dam and overseas projects in Australia and Taiwan are touted as in the final stages.

• Gamuda is currently trading at FY25F PE of 15.5x, which is close to its long-term average PE of 15x.

Source: AmInvest Research - 26 Jun 2024