Gamuda’s 60% subsidiary, SRS Consortium has secured a main con contract for Penang LRT Segment 1 worth RM8.3bn. Win lifts orderbook to RM37bn (+15%). In FY07/25 YTD, total wins stand at RM13.8bn surpassing projected burn rate with >6 months to go. Contract pipeline remains strong anchored by Sabah water, various ECIs in Australia and 1GW DC development. While potential AI hardware restriction has dampened sentiment, Gamuda’s high quality client exposure could reduce such risks. No change in forecasts. Maintain BUY with unchanged TP of RM5.50.

NEWSBREAK

Gamuda announced that its 60% owned subsidiary, SRS Consortium Sdn Bhd has been appointed civil main contractor for Penang LRT Segment 1 (Silicon IslandKOMTAR) by MRT Mutiara Sdn Bhd for a contract value of RM8.3bn (Gamuda’s stake: RM5.0bn). The remaining 40% stake in SRS is equally owned by Loh Phoy Yen Holdings Sdn Bhd and Ideal Property Development Sdn Bhd. Scope of works mainly involve design, construction and completion of elevated guideways, stations and a depot at Silicon Island. Contract execution is estimated at 72 months.

HLIB’S VIEW

Segment 1 details. Penang LRT Segment 1 stretches 23.7km from Silicon Island to Kompleks Tun Razak (KOMTAR) featuring 20 stations (including 1 provisional station at Silicon Island) and one depot located in Silicon Island. The other depot located in Tapak Pesta will be developed into a transit oriented development (not included under this Segment 1 contract). Within Segment 1, there will be two interchange stations at KOMTAR (interchange with future metro lines) and Macallum (interchange between Segment 1 & 2).

Orderbook momentum continues. At an effective contract value of RM5.0bn, Gamuda’s orderbook swells to RM37bn (+15%) on route to the RM40-45bn mark. This contract brings Gamuda’s contract wins tally in FY07/25 to RM13.8bn (Fig. 3) surpassing our projected FY25 burn rate (RM11.5bn). Although we are positive on contract formalisation, this is within market expectations considering this win was telegraphed by MOT since March-24. PBT margin is anticipated to average 8% for the project. Going forward we expect Gamuda to continue digesting its high certainty project pipeline (Sabah water & various ECI engagements in Australia). We gather Gamuda’s 5 year target of doubling group revenue to RM30bn by FY28 is based on conservative domestic E&C revenue forecasts ranging between RM3.9-4.6bn p.a. independent of potential pipeline from its 1GW data centre development in Springhill, Negri Sembilan.

Systems & segment 2. Remaining available packages from Penang LRT project are Segment 2 turnkey (RM3-4bn) and systems (RM1.2bn) build-maintain-transfer packages. Tender submission for the latter will end on 14-Apr-25 with contract award expected in 3Q25 while Segment 2 tender is anticipated in July-25. At a clearance height of 62m (vs 1st and 2nd Penang bridges of 30-33m), the railway bridge (Segment 2) is designed to allow passing of large ships given the alignment’s proximity to ports. While we think Gamuda qualifies for both tenders, we have not factored in wins from these packages.

Near term DC uncertainties. Since it was reported that the Biden administration intends to introduce AI chip quotas, share price has not been spared (-7%). Yesterday, an interim ruling on sale of advanced AI chips was released following which a 120 day comment period will be observed (1 year period for implementation). Ultimately, rules governing sales of advanced AI chips will be finalised by the incoming Trump administration. Overall, we think Gamuda’s DC pipeline is lower risk, primarily exposed to US HQ-ed hyperscalers. Our view is pipeline clients could face lower hurdle in applying for Universal Verified End User (UVEU) status – allowed to place up to 7% of their global AI computational capacity in countries around the world translating to “hundreds of thousands of chips”.

Forecasts. No change.

Maintain BUY, TP: RM5.50. We maintain BUY rating with unchanged TP of RM5.50 derived based on 10% discount to SOP value of RM6.12. We remain positive on the stock on the back of: (i) orderbook upcycle from high certainty pipeline (ii) differentiated DC strategy and (iii) growing leverage into Australian RE space. Stock is trading at FY26f/27f P/E multiple of 20.6x/16.9x which is undemanding, even when comparing based on its historical pre-KLCI trading range.

Source: Hong Leong Investment Bank Research - 14 Jan 2025