• Keep BUY, with SOP-based MYR6.46 TP, 26% upside and c.2% yield. We expect Gamuda’s 2QFY24 (Jul) core profit to be MYR200m-220m, possibly translating to a 3-13% QoQ and YoY growth. Better progress billings from its overseas projects (particularly Sydney Metro West) (Figure 1) are expected to underpin the performance for 2QFY24, in our view. We continue to favour GAM for its sizeable overseas exposure while maintaining relevance in the domestic space via the Mass Rapid Transit 3 (MRT3) tender submitted and Upper Padas Hydroelectric Dam.

• DT Infrastructure (DTI) remains steady. GAM’s wholly-owned subsidiary in Australia, DTI, was recently awarded the early works contract for the 372MW Boulder Creek Wind Farm (onshore) in central Queensland from Aula Energy. Based on an assumption of AUD1.6m cost per MW installed – we estimate the project to potentially cost c.AUD600m. As for the early works contract awarded to DTI – we estimate it at AUD2m-5m. This assumption was benchmarked on the AUD20m early works contract awarded to CIMIC Group’s UGL and CPB Contractors for the AUD5bn 1,000km transmission line project (CopperString in Queensland).

• Large potential to expand orderbook Down Under. Although the early works contract is small relative to GAM’s orderbook of c.MYR24bn, we view it as an important start for DTI to mark its presence in Australia’s renewable energy sector before embarking on larger scale contracts. As of 31 Oct 2023, projects under DTI made up MYR4.6bn, or 19% of the group’s MYR24bn outstanding orderbook, while projects in Australia, as a whole, contributed 50%. Looking ahead, GAM has been shortlisted for four projects - i) second tunnelling package for Suburban Rail Loop (SRL) East (Glen Waverley to Boxhill) (estimated at AUD2-4bn), ii) a highway in Melbourne, iii) a line wide package for SRL metro, and iv) a potential extra Sydney Metro West Station in Rosehill. Therefore, GAM is on track to hit its MYR25bn job replenishment target over FY24F-FY25F.

• Further prospects in Australia. Australia requires c.10,000km of transmission lines. As such, GAM via DTI or its Australian subsidiary Gamuda Engineering Pty Ltd may in the coming future form JVs with relevant partners to leverage on renewable energy zones and transmission grid pipelines, worth >AUD35bn in New South Wales alone.

• No changes to earnings estimates. As such, our SOP-derived TP of MYR6.46 (with a 6% ESG premium) also remains. We view GAM’s current 12.8x FY25F P/E as undemanding as it was trading around 16x P/E in mid-CY17 during the construction upcycle when its orderbook was only at MYR7.8bn vs c.MYR24bn now. Rerating catalysts would be faster-than-expected job wins in Australia and an unchanged price tag for the MRT3 tunnelling package in Malaysia. Potential job wins also on the domestic front may come from the Bayan Lepas Light Rail Transit and Phase 1B of Pan Borneo Highway Sabah.

• A key risk includes slower-than-expected job replenishment trends.

Source: RHB Research - 20 Mar 2024