• Stay BUY, new MYR7.69 TP (SOP) from MYR7.08, 21% upside, 2% FY24F (Jul) yield. We expect 3QFY24 core profit to be between MYR230m and MYR250m, possibly translating into 3-12% YoY growth. Better progress billings from overseas projects – particularly Sydney Metro West (Figure 1) – are expected to underpin 3QFY24’s performance, in our view. We continue to favour Gamuda for its sizeable overseas exposure while maintaining relevance in the domestic space.

• Jobs flow update. We believe GAM’s initial target to secure MYR25bn worth of new jobs over FY24-25 may likely be surpassed, given the robust jobs pipeline. YTD-FY24 new job wins stands at c.MYR7bn (based on Bursa Malaysia announcements), while actual wins total up to c.MYR9bn according to management – the balance is likely from DT Infrastructure (DTI) wins. An upcoming near-term job win may come from the Suburban Rail Loop (SRL) East tunnelling package (Glen Waverley-Boxhill) in Melbourne, estimated to be worth between AUD1.2bn and AUD1.5bn for GAM’s 50% share. According to Infrastructure Pipeline, said job is set to be awarded in September, but we do not discount the possibility of a June/July award.

• What other projects to look out for locally? In FY25, the Penang Light Rail Transit Mutiara Line Segment 1 could be awarded in September/October – estimated at MYR4.8bn (GAM’s 60% share in the SRS Consortium). Other potential domestic jobs include the Penang International Airport expansion job (total cost: MYR1.5bn) and construction of the Upper Padas Hydroelectric Dam (still pending financial close and may cost MYR2-2.5bn in our view), amongst others. A bonus for GAM: The clinching of highway projects in Sarawak and Sabah, ie new phases of the Pan Borneo Highway.

• On the international front, other potential jobs – aside from the SRL East tunnelling package – include a line-wide package for the SRL project and highways in Victoria, and upcoming awards via DTI, namely the high-capacity signalling project in Perth worth <AUD1bn.

• All in, we tweak our FY24F job target downwards to MYR13bn from MYR15bn but increase our FY25F new job wins target to MYR15bn from MYR10bn. Hence, we adjust FY24F-26F earnings by -1%, +8%, and +7% post adjustments. We also take the opportunity to ascribe a higher target P/E of 18.5x from 17x for GAM’s domestic construction wing to reflect the group’s reach – not just for local infrastructure projects but data centres too. Consequently, we arrive at a new SOP-derived MYR7.69 TP, which bakes in a 6% ESG premium based on GAM’s 3.3 ESG score vs the 3.0 country median.

• We view GAM’s 15.6x 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.MYR22bn now. Re-rating catalysts include frequent wins of new data centre jobs in Malaysia. A key risk: Slower-than- expected job replenishment trends.

Source: RHB Research - 25 Jun 2024