• Gamuda announced winning two substantial contracts, valued at a combined of RM1.7bn for the construction of hyperscale data centers (DC) at Elmina Business Park, under the ownership of Sime Darby Property.

• Gamuda's orderbook soars to RM25.8bn, fueled by its strategic entry into the high-margins DC construction market. This growth is magnified by its rapid project deployment, leveraging its NextGen Digital IBS to expedite delivery.

• In the 2H2024, we anticipate a revenue uptick driven by projects in Australia, supported by the strategic shift towards clean energy and renewables infrastructure.

• Maintain our BUY recommendation on Gamuda with higher SOP-derived TP of RM6.53 (from RM6.30).

Double Wins of Hyperscale Data Centre projects

In a recent announcement, Gamuda has secured two significant contracts related to hyperscale data centres (DC) at Elmina Business Park, a development owned by Sime Darby Property with combined value of RM1.7bn which contributed to earnings for FY24-25. The first contract, worth RM815mn involves the construction, completion, testing, and commissioning of the data centre, including associated ancillary facilities which set to begin on 27th May 2024 with a 21- month completion timeline. The second contract, valued at RM928.6mn, covers the mechanical, electrical, and plumbing (MEP) fit-out package and scheduled to commence in July 2025 with a completion duration of 14-months. On a separate note, as of 25th May 2024, Permodalan Nasional Berhad (PNB) maintains a cumulative direct and indirect interest of 13.7% in Gamuda and 50.2% in Sime Darby Property. Despite these intertwined ownership structures, the award of the hyperscale DC project to Gamuda was conducted through a public tender, hence does not classified as a related party transaction.

A Gateway to Promising Revenue

With these wins, Gamuda’s orderbook now reaches RM25.8bn, with total DC projects accounting for c.9%. To recap, the company's initial foray into DC construction began with a RM500mn contract for AIMS Cyberjaya. Notably, Block 2 of this project was completed in just 8- months, surpassing the targeted 13-month timeline. This accelerated delivery was facilitated by its Next-Generation Industrial Building System (Next-Gen Digital IBS), which employs Industrial Revolution 4.0 technology. These contracts and achievements substantially strengthen Gamuda's portfolio in the DC segment and we believe that the company is well positioned to capitalise on the growing demand in DC, potentially leading to increased revenue streams and

additional growth opportunities.

We do note that DC construction projects could potentially yield healthier double-digit margins, and velocity is key in this competitive landscape of the field. By leveraging its NextGen Digital IBS to expedite delivery, Gamuda significantly enhances its prospects of securing additional DC projects. Furthermore, the company is increasing production capacity of its DC construction materials to stay ahead of demand, enabling it to capitalise on opportunities to double DC orders.

Seizing Opportunities in Australia's Renewable Energy Sector

In 2QFY2024, 86% of Gamuda’s construction revenue originated from its overseas division. Besides the burgeoning DC contracts, we anticipate the company’s revenue growth in 2H2024 to be primarily driven by projects in Australia and Quick-Turnaround Projects (QTPs), bolstered by their strategic shift towards the clean energy and renewables infrastructure sector. Over the next five years, Gamuda aims to develop a portfolio of solar and wind projects totalling 1 to 2 GW through significant Engineering, Procurement, and Construction (EPC) contracts. This opportunity is further amplified by Australia’s projected peak investment in renewable energy infrastructure construction, estimated at USD13.3bn by 2026. Additionally, the country has unveiled plans for a new national Capacity Investment Scheme (CIS) tender process starting in May 2024, seeking proposals for 6GW of new variable renewable energy projects to replace aging coal power generation. With three major road and rail projects in the region, along with its Downer Transport Infrastructure (DTI) projects totalling RM11.1bn, we believe Gamuda could stand a chance to seize opportunities in this segment, leveraging its established presence in Australia.

Maintain a BUY with higher TP of RM6.53

We reiterate our BUY recommendation on Gamuda with higher SOP-derived TP of RM6.53 (from RM6.30). Our positive view on the stock remains unwavering, underpinned by: 1) robust earnings outlook supported by the company's substantial outstanding orderbook of RM25.8bn and unbilled property sales of RM6.7bn, 2) Gamuda’s strong foothill in Australia construction landscape, and 3) burgeoning demand in DC.

Source: BIMB Securities Research - 27 May 2024