A JV between GAMUDA and French rail transport giant Alstom has been officially awarded the AUD1.6b (RM5b) METRONET high- capacity signalling (HCS) project in Perth. GAMUDA’s share of works is RM2.3b. We maintain our forecasts and TP of RM7.29 but downgrade our call to UNDERPERFORM from OUTPERFORM as its valuations have become rich.

AD Alliance, a 46:54 JV between GAMUDA’s unit DT Infrastructure Pty Ltd (DTI) and Alstom Transport Australia Pty Ltd has been formally awarded by the government of Western Australia the AUD1.6b (RM5b) METRONET HCS project in Perth. Recall, the JV was, in Apr 2024, picked as the preferred contractor for the project pending finalisation of contract terms. The scope of works includes to build the state-of-art Urbalis Communications-based train control on Perth’s suburban rail networks, to upgrade the existing signalling and control systems to an integrated communications-based train control system which will be delivered in multiple line-by-line stages to minimise disruption to train operators. Based on its 46% stake in the JV, GAMUDA’s share of works is AUD737m (c.RM2.3b) over 10 years commencing 2HCY24.

We are positive on the contract win. GAMUDA has secured six contracts wins YTD with a total value of RM15.4b-RM15.8b, on track to our job win assumption of RM27b over two year in FY24-FY25. Out of these six contracts wins, four of them are with firmed contract value totalling RM8.8b while two civil work contract for Upper Padas Hydroelectric Power Plant (estimated at RM2b) and Penang LRT Mutiara Line (estimated at RM4.6b-RM5b) projects are still under negotiation.

Forecasts. Maintained.

Valuations. We maintain our SoP-based TP of RM7.29 (see Page 2) that values its construction business at 20x FY25F PER and includes a 5% premium given its 4-star ESG rating as appraised by us (see Pages 6).

Investment case. We like GAMUDA for: (i) being in the driver’s seat for the Mutiara Line of 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 RM26.5b (excluding Upper Padas Hydro and Penang LRT), and (v) its inroads into the renewable energy space. Nonetheless, we downgrade our call to UNDERPERFORM from OUTPERFORM as its share price has run ahead of its fundamentals.

Risks to our call include: (i) 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 change in government policies towards foreign businesses and forex, and (iv) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 19 Jul 2024