• Stay BUY, new MYR6.55 TP (SOP) from MYR6.30, 17% upside, 2% FY25F (Jul) yield. We visited Gamuda Land’s (GL) property projects in Ho Chi Minh City (HCMC), Vietnam, and came away feeling upbeat on the prospects the city has for Gamuda’s property arm. Vietnam property projects contributed c.30% of overall group revenue in FY23. Based on our assessment, we believe HCMC is set to grow and be a major driver for GL’s growth in Vietnam whilst maintaining the country’s contribution of at least 25-30% of group revenue in the coming years.

• HCMC’s property market overview. Overall, property supply remains low while demand is expected to remain stable-to-strong amidst low interest rates combined with better foreign direct investment (FDI) in HCMC. In 1QCY24, the primary supply of apartments in the city reached 4,922 units (-27% YoY). The slow legal completion process continually impacted on the market’s new supply. On the flip side, new supplies recorded a high absorption of 80%, indicating a vibrant apartment market in HCMC.

• GL’s portfolio of projects in HCMC. With Celadon City nearing completion, GL may focus more on its quick turnaround projects, with the latest being Eaton Park in Thu Duc City (GDV: USD1.1bn). Eaton Park was officially launched on 18 May with a take-up rate of 95% (for the first phase covering 600 units across two towers) within two hours after the launch. Looking ahead, we gather that GL plans to invest c.USD800m within the next five years with a focus on HCMC. Near-term new launches include The Meadow and Springville, which would be strategically located near key connecting highways.

• Earnings estimates and valuation. We make no changes to our earnings estimates, but take the opportunity to tweak our discount to property RNAV to 45% from 50%. This is to reflect the bright prospects of HCMC’s property market, which is set to drive the growth of Gamuda’s overseas property segment. Consequently, we arrive at a new SOP-derived MYR6.55 TP, which bakes in a 6% ESG premium based on an ESG score of 3.3.

• A specific catalyst for HCMC is faster-than-expected acquisition of new projects in HCMC while a general catalyst for the group would be faster- than-expected job wins for its construction arm. Gamuda continues to be one of the cheapest large-cap construction stocks – trading at 14.7x P/E – and we view this is unjustified, as it was trading at 16x P/E during the construction upcycle in mid-2017.

• Key downside risks that may stem from HCMC include lower-then- expected take-up rates in upcoming launches, while general risks for the group as a whole would be overall sluggish job replenishment trends for the construction arm.

Source: RHB Research - 20 May 2024