• Gamuda announces winning METRONET High-Capacity Signalling (HCS) Project in Perth in alliance with ALSTOM Transport (ALSTOM) valued at AUD1.6bn (RM5.0bn)

• Gamuda's orderbook soars to RM26.5bn, equivalent to 3.2x FY23 revenue, providing robust earnings visibility up to FY28F.

• Given its broad capability to secure substantial domestic infrastructure projects, we foresee the company reaching the RM30bn replenishment threshold.

• We have BUY recommendation on Gamuda with SOP-derived TP of RM9.50 (from RM6.53), implies a 18x PER on FY25F EPS.

Edges Closer to RM30bn Orderbook Target

In a recent announcement, Gamuda, through its wholly owned subsidiary in Australia, DT Infrastructure (DTI), has recently secured the METRONET High-Capacity Signalling (HCS) Project in Perth. This significant win, in alliance with ALSTOM Transport (ALSTOM), has boosted Gamuda's orderbook to RM26.5bn, moving closer to revised replenishment target of RM30bn. The 46:54 alliance of DTI and ALSTOM contract win valued at AUD1.6bn (c.RM5bn), entails the design, supply, installation, testing, commissioning and maintenance of advanced signalling technology for Perth's suburban rail network. Set to begin in the 2H2024, the 10-year project is expected to generate revenue of AUD737mn (c.RM2.3bn), which will be reflected in the company's FY25F earnings. The HCS contract, being the world's largest by route length, solidifies Gamuda's presence and reputation in the Australian market, showcases Gamuda's capability to deliver large-scale, transformative infrastructure solutions, likely leading to further opportunities in the region.

Domestic infra in the pipeline

As overseas earnings continue to be a significant driver, Gamuda is poised to capitalize on a robust surge in infrastructure projects, position strongly to enhance its domestic margins. The upcoming rollout of the Penang LRT and the finalization of the Upper Padas Hydroelectric Project in 2H2024 are pivotal to driving this growth trajectory. Additionally, potential successes in major initiatives namely the Pan Borneo Sabah Highway, Coastal Highway Sarawak and the expansion of the Penang Airport would significantly bolster Gamuda's domestic project pipeline. Further reinforcing this growth outlook is the continuous development of data centers, coupled with a robust backlog of unbilled property sales totaling RM6.7bn.

Upgrade to a BUY call with higher SOP-derived TP of RM9.50 (from RM6.53)

We have revised our new job replenishment assumption to RM30bn (from RM25bn) for FY24F-25F and have adjusted our progress billing assumptions to align with the changes in revenue recognition timing which then resulted in revised earnings forecast for Gamuda to 8%/21%/19% for FY24F/FY25F/FY26F respectively. The company's potential for higher earnings growth, bolstered by its strong position in securing high-profile projects, justifies a higher PE valuation of 22x for construction segment (up from 16x). This is further supported by its burgeoning orderbook of RM26.5bn, providing robust earnings visibility through FY28 and our positive outlook on the construction sector. Backed by the substantial backlog unbilled sales of RM6.7bn, we also made adjustment on the property RNAV discount to 40% (from 50%), considering the improvement in property market prospect.

Previously, our TAKE PROFIT call was based on the premise that the company's fundamentals remained intact and we recommended accumulating at lower levels. Nevertheless, with the price rally and potential upside, we upgraded Gamuda to a BUY and increased our SOP-derived TP to RM9.50 (from RM6.53), underpinned by: 1) robust earnings outlook supported by the company's substantial outstanding orderbook of RM26.5bn and unbilled property sales of RM6.7bn, 2) Gamuda’s strong foothill in Australia construction landscape, and 3) burgeoning domestic infra project rollout

Source: BIMB Securities Research - 23 Jul 2024