GAMUDA’s Australia unit kick-started contract wins for FY25 with an EPCC job worth AUD243m (c.RM702m) for a renewable energy (RE) project in Queensland. Although the guided pre-tax margin of 4%-5% is lower than the usual, we take comfort in the low-risk profile and its ability to secure projects in an advanced economy, and strengthened RE credentials. This job increased its outstanding order book by 3% to RM25.5b. We maintain our forecasts and OUTPERFORM recommendation at a TP of RM9.20.

Secured AUD243m EPCC contract for RE Project. Last Friday, GAMUDA announced that its wholly-owned Australian subsidiary, DT Infrastructure Pty Ltd (DTI), has been awarded an EPCC contract from Aula Energy and CS Energy worth AUD243m (c.RM702m). DTI will undertake the civil and electrical work for the wind farm located c.40 km southwest of Rockhampton in Queensland, Australia. The project is expected to start in late 2024, with duration of 32.5 months.

First job secured in FY25. We are positive about this contract win, which is part of the RM15b contracts target that the company plans to secure over the next six months, as guided during its 4QFY24 results briefing last Thursday. This job increases its outstanding order book by 3% to RM25.5b. We have assumed new job wins of RM14.5b in FY25, which is comparatively conservative compared to management’s aggressive target of RM30b. Although this project comes with a typical Australian contractor margin of 4%-5% (pre-tax level) for smaller-scale projects, we are comfortable with the lower margin, given its low-risk project profile. In risk mitigation, Gamuda was already earlier in March selected as early contractor involvement (ECI) before being conferred the entire contract.

Outlook. In the near-term, GAMUDA guided a total of RM15b contract win in the next six months, including EPCC portion of Upper Padas, the negotiation conclusion of Penang LRT Mutiara Line, several data centre awards worth RM3b only for hyperscale projects, as well as several major infrastructure and renewable energy projects in Australia.

Forecasts. Maintained with new job win assumption of RM14.5b and RM15.0b for FY25 and FY26, respectively.

Valuations. We maintain our SoP-based TP of RM9.20 (see Page 2) that values its construction business at 22x FY26F 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 RM25.5b (excluding Upper Padas Hydro and Penang LRT), and (v) its inroads into the renewable energy space. Maintain OP.

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 - 30 Sep 2024