GAMUDA’s 1HFY24 results met expectations. Its 1HFY24 core profit only grew 2% YoY but it guided for a stronger 2HFY24 on higher construction and property profits. It is poised to secure two data centre building jobs but has no intention to own data centres at this juncture. We maintain our forecasts but raise our TP by 14% to RM6.20 (from RM5.45). Maintain OUTPERFORM.

Its 1HFY24 core net profit of RM391.6m came in at only 36% and 41% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect stronger earnings in 2HFY24 on accelerated construction and property billings. No dividend was declared in 2QFY24 as expected, as it regularly pays in 1Q and 3Q historically.

YoY. Its 1HFY24 revenue more than doubled, largely driven by overseas constructions especially from Sydney Metro West (SMW) and maiden contribution from Australian unit DT Infrastructure (DTI). Nonetheless, its core profit only grew 2% due to a lower blended construction margin due to low-margin overseas jobs.

More specifically, its 1HFY24 construction PBT margin shrank to 6% (from 17% a year ago) as overseas revenue made up 86% of total revenue (vs. only 64% previously). In addition, its overseas projects were mostly at the initial stages of implementation (which typically do not warrant aggressive profit recognition) coupled with the high base in 1HFY23 due to lumpy profits upon the completion of MRT2.

QoQ. Its 2QFY24 revenue rose 16% on higher revenue from both construction (+8%) as well as property (+62%) segments. SMW’s completion stood at 48% (vs. 39% three months ago) while DTI contributed c.RM300m. Its core profit only rose 9% due to lower blended construction margins and low property profits, we believe, potentially due to recognition of lumpy marketing expenses.

The key takeaways from the results briefing are as follows:

1. It guided for a stronger 2HFY24 on: (i) maiden contribution from Penang Silicon Island (PSI) reclamation works, and (ii) stronger property profit earnings from Malaysia and Vietnam (from 2HFY24), Singapore (from 3QFY24) and UK (from 4QFY24 driven by the Winchester House project). Meanwhile, Australian property sales will kick in during FY25.

2. GAMUDA is confident on securing two data centre building jobs locally. On a separate note, at this juncture, it has no intention to own data centres. It quoted high capex and potential oversupply at some point in the future as its key concerns. Nonetheless, it holds the belief that the data centre business is still at the early stages of its up-cycle and the upward momentum could last at least for another five years.

3. It is hopeful that the award of Bayan Lepas LRT project could happen “soon”, with the green light from the federal government being the last hurdle. However, it is more cautious on the timing of the award of MRT3 given its much greater impact to the government’s finances. Recall, the validity of tenders for MRT3 work packages will expire at the end of the month (and bidders are likely to be asked to extend again).

Forecasts. Maintained.

Valuations. However, we lift our SoP-based TP by 14% to RM6.20 (see Page 3) from RM5.45 previously as we roll over our valuation base year to FY25F (from FY24F). We continue to value its construction business at 18x PER and have updated its property RNAV (see Page 4). Our TP reflects a 5% premium given a 4-star ESG rating as appraised by us (see Pages 6).

We continue to like GAMUDA for: (i) being the front-runner for the Bayan Lepas LRT and the tunnelling job for the MRT3, (ii) its ability to secure new jobs in overseas markets, (iii) its strong war chest after the disposal of its toll highways, (iv) its strong earnings visibility underpinned by a record outstanding order book of RM26.1b, and (v) its inroads into the renewable energy space. Maintain OUTPERFORM.

Risks to our call include: (i) the delays in the roll-out of key public infrastructure projects in Malaysia such as the MRT3, (ii) rising input costs and labour shortage, (iii) risks associated with operations in overseas markets such as the change in government policies towards foreign businesses and forex, and (iv) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 29 Mar 2024