GAMUDA’s 9MFY24 results met expectations. It raised its revenue guidance for FY24-26 by 15%, 27% and 15%, respectively, and guided for end-CY24 outstanding order book of RM30b, which effectively reaffirms its optimism on job wins. We maintain our forecasts, TP of RM7.29 and OUTPERFORM rating.

Its 9MFY24 core profit of RM625.4m came in at only 56% and 64% of our full-year forecasts and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect a bumper 4QFY24 on accelerated construction and property billings. It declared a 10 sen NDPS in 3QFY24, bringing YTD NDPS to 16 sen, which came above our FY24F NDPS projection of 12 sen.

YoY. Its 9MFY24 revenue jumped 73% on higher construction billings from overseas projects such as Sydney Metro West (SMW) and DT Infrastructure (DTI). However, its core profit only rose 3% as lumpy profit recognition from the OLA property project in Singapore (on a completion basis) were offset by weaker construction profits on a lower blended construction margin due to the typically low-margin overseas jobs. Its overseas net construction margin improved to 3.6% in 9MFY24 (from 3.3% a year ago) while its local construction net margin fell to 14.4% (from 16.4%) as profit recognition from the MRT2 tailed off.

QoQ. Its 3QFY24 revenue rose 13% led by property revenue (+34%) from the OLA project while construction revenue rose 3% led by SMW. Correspondingly, its core profit grew 15%.

The key takeaways from the results briefing are as follows:

1. It raised its revenue guidance for FY24-26 by 15%, 27% and 15% to RM15b, RM19b and RM23b (from RM13b, RM15b and RM20b previously), respectively. With 9MFY24 revenue of RM10.0b, its FY24 revenue guidance implies a bumper RM5b revenue in 4QFY24 underpinned by strong construction and property billings.

2. It guided for its outstanding construction order book to rise to RM30b by end-CY24 (from RM24.3b as at end-Apr 2024) as it expects the formalisation of the award of Upper Padas Hydro power plant, the Mutiara Line of the Penang LRT and the potential award of four projects in Australia (three in Melbourne and one in Sydney) of which it has been short-listed.

Based on our back-of-the-envelope calculation, its guidance for end-CY24 outstanding order book of RM30b is consistent with its previously guidance for RM25b job wins over two years in FY24- 25. We take into consideration its churn rate of about RM3b per quarter and the formal award of the Mutiara Line, Upper Padas Hydro plant and high-capacity signalling project in Perth. To recap, our forecasts assume slightly higher job wins of RM27b over two years in FY24-25.

3. It reiterated its guidance for RM5b property sales in FY24, despite having only recorded RM2.3b for 9MFY24, driven by strong overseas sales including the newly launched Eaton Park in Ho Chi Minh City, Vietnam.

Forecasts. Maintained. Our forecasts are premised upon a job win assumption of RM27b over two years in FY24-FY25. Meanwhile, we raised both our FY24-FY25F NDPS projection to 16 sen from 12 sen previously.

Valuations. We maintain our SoP-based TP of RM7.29 (see Page 3) that values its construction business at 20x FY25F PER and includes 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 driver’s seat for the Mutiara Line for the Penang LRT and front-runner for 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 RM24.2b, and (v) its inroads into the renewable energy space. Maintain OUTPERFORM.

Risks to our call include: (i) delay 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 - 26 Jun 2024