• 1QFY7/24 results met our expectations, construction revenue driven by overseas projects while property presales will catch up in upcoming quarters.

• Slew of good news for construction, including the MRT win in Singapore.

• Reiterate Add and SOP-based TP of RM5.65.

1QFY7/24 – Decent Start to the Financial Year

• 1QFY7/24 core net profit came in at RM186m (+29% yoy), which made up 20% of our full-year forecast and 18% of the Bloomberg consensus number. We deem the results in line as we expect earnings momentum to pick up in upcoming quarters amid better construction progress, a full year’s consolidation of DT Infrastructure, and lumpy property recognition for two overseas property projects (Australia and UK).

• The key highlight for 1QFY24 was the 178% yoy jump in construction revenue to RM2.2bn (84% from overseas) which is on track to meet Gamuda’s RM10bn target for FY24F. However, construction pretax profit margin in 1QFY24 was 5.9%, vs 13.9% in 1QFY23, due to the absence of contributions from its high-margin Malaysia MRT 2 project and its Australia projects still in the process of being ramped up. Current overseas construction margins are still tracking Gamuda’s budgeted numbers. Its maiden Australia project, the Sydney Metro West–Western Tunnelling Package (SMWWTP), has reached 39% completion as at end-1QFY24 after factoring in an additional RM1.2bn in variation orders approved.

• 1QFY24 property pretax profit increased by 46% yoy to RM107m with improved margins of 17.6% (vs. 11.4% in 1QFY23), underpinned by strong unbilled sales of RM6.7bn. 1QFY24 delivered presales of RM454m (61% local, 39% overseas) may appear low compared to its FY24F target of RM5.6bn but this is not unexpected, in our view, as the historical presales trend shows numbers skewed in favour of 4Q.

Key Highlights From Analyst Briefing

• There was a slew of good news for its construction business: i) Gamuda announced a S$509m (c.RM1.8bn) West Coast Station & Tunnel MRT project win in Singapore. Pretax profit margin guidance is 8%, which is above the previous guidance of 5% for Singapore projects; ii) Gamuda has been shortlisted for a highway project in Melbourne, but no details have yet been revealed, and iii) extension of scope for its existing SMWWTP which may potentially include another two stations.

• At its analyst briefing today (6 Dec), Gamuda reiterated its guidance of doubling its group revenue in FY24F to RM17bn-18bn. There is also no change in its new order win target of RM25bn in total for FY24-25F; it has so far clinched RM6bn (RM3.0bn Kaohsiung MRT package for its 84% share in Taiwan and RM3bn hydroelectric power plant project in Sabah). Potential projects in the pipeline are MRT 3 tunnelling (tender validity extended for the fourth time to end-Mar 24), Suburban Rail Loop East second package, Pan Borneo Sabah highway, and Penang LRT.

• We remain confident of Gamuda’s ability to execute its infrastructure projects in Australia, which has become an important market, contributing 47% (RM12.1bn) of its total orderbook of RM25.8bn as at Dec 23. Gamuda targets to double its Australian revenue to a sustainable A$3bn/year in 2-3 years’ time but the challenge is to reduce its overheads, by offshoring some of the detailed design work to Malaysia to lower costs. We understand that there could potentially be a 1-2% pt margin uplift beyond the pretax margin guidance of 8% for its Australia projects.

Reiterate Add and TP of RM5.65

• We reiterate our Add rating and SOP-derived TP of RM5.65. Current valuations of 12x CY24F P/E and 1.0x CY24F P/BV (1 s.d. below 18-year mean) look extremely compelling, in our view, considering its strong growth trajectory and record orderbook. Key downside risks: potential labour issues locally and abroad, which could derail its construction progress, delays in job awards, and higher raw material costs. Key rerating catalysts are stronger construction wins and property sales.

Source: CGS-CIMB Research - 6 Dec 2023