• Still BUY and MYR7.69 TP (SOP), 18% upside and 3% FY24F (Jul) yield. 9MFY24 core earnings of MYR639m grew 5% YoY vs the same period last year, which still had residual profits from toll recognition – particularly in 1QFY23. 9MFY24 earnings made up 70% and 65% of our and Street’s estimates, and we deem this in line, as we expect a stronger 4QFY24 backed by the property arm (particularly for overseas projects) and progress of ongoing construction jobs. We continue to favour Gamuda for its sizeable overseas exposure while maintaining relevance in the domestic space.

• GAM’s construction arm recorded a 9MFY24 PAT of MYR364m (+3% YoY), as overseas projects (particularly Australian ones) played a role in filling up the void from the domestic jobs front. The segment’s PAT margin remains at a low level of 5.1% in 9MFY24 (9MFY23: 9.2%), as overseas projects made up c.86% of construction revenue. Nonetheless, the PAT margins of such overseas jobs inched up to 3.6% in 9MFY24 (9MFY23: 3.3%). We expect overall construction margins to gradually trend upwards amidst improved contributions from higher-margin local jobs, eg the Penang Light Rail Transit (LRT) Mutiara Line and data centre jobs. Moreover, the less volatile construction price index in Australia could limit unexpected building materials price escalations for ongoing tenders and upcoming variation orders for the Sydney Metro West-Western Tunnelling Package project.

• The property segment saw a 31% YoY growth in PAT for 9MFY24, with domestic projects making up 68% of sales. We envisage property earnings to be stronger in 4QFY24 due to lumpy recognitions, particularly from West Hampstead in London. Moreover, the property arm’s unbilled sales stands at MYR6.7bn as at end 9MFY24 vs MYR5.7bn during the end-9MFY23 period.

• Prospects. GAM’s construction orderbook stood at MYR24bn as of end April (c.4x cover ratio). With a half-yearly burn rate of MYR5bn for its construction works executed, combined with upcoming job wins, the group expects to likely attain a new orderbook level of >MYR30bn by end 2024. Such new levels could be facilitated by potential wins such as the: i) Penang LRT (estimated at c.MYR5bn for GAM’s 60% share in SRS Consortium, ii) Upper Padas Hydroelectric Dam that includes a water supply scheme (expected at >MY3bn, in our view), and iii) Suburban Rail Loop East tunnelling package (Glen Waverley-Boxhill) estimated at between AUD1.2bn and AUD1.5bn for GAM’s 50% share, among others.

• No changes to our earnings estimates as results were deemed in line. As such, our SOP-derived TP of MYR7.69 (which incorporates a 6% ESG premium based on its 3.3 ESG score) is maintained. We believe GAM’s 15.9x FY25 P/E is undemanding, as it was trading around 16x P/E in mid-2017 during the construction upcycle when its orderbook was only at MYR7.8bn (in the absence of data centre and large overseas jobs) vs c.MYR24bn as at end April. 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 - 26 Jun 2024