• Still BUY and SOP-based MYR10.52 TP, 18% upside and c.2% FY26F (Jul) yield. Gamuda, in a 50:50 JV with Ferrovial Construction (Ferrovial), was appointed as the Early Contractor Involvement (ECI) partners by Alinta Energy for the Oven Mountain Pumped Hydro (OMPH) project in New South Wales, Australia. This is GAM’s first pumped hydro project and ties in well with the group’s aim to build up to a 2GW portfolio of renewable energy projects within five years in Australia in addition to normal infrastructure jobs (railways and highways).

• Project details. No details were disclosed on the potential contract size of the OMPH project but based on the project cost modelling done by the Australian Energy Market Operator (AEMO), a new hydro project is priced around AUD2m/MW. As the OMPH project is planned to generate up to 900MW of electricity, the project should cost around AUD1.8bn based on AEMO’s cost modelling. We expect contractor PBT margin for the EPCC works of the OMPH project to be between 10% and 20% – higher than the general PBT margin of other infrastructure works (rail and highways).

• ECI award an important milestone. The size of ECI works are estimated to be not more than 2% of the total contract value of the OMPH project. Assuming the OMPH project is AUD1.8bn based on the aforementioned expectations above – the ECI package could be c.AUD36m (or AUD18m based on GAM’s 50% share). As an early contractor, GAM with Ferrovial will work closely with the client to address any potential environmental, land acquisition, and other issues in the planning stage on top of undertaking detailed design works and initial procurement discussions.

• Also, GAM and Ferrovial’s role as an early contractor gives the JV a higher success rate to be the EPCC contractor for the OMPH project – whereby EPCC works are targeted to commence in 4QCY25 subject to final approval from authorities. Recall that GAM’s subsidiary, DT Infrastructure secured an ECI package for an onshore windfarm project in Queensland in March before being awarded the civil works package in September this year.

• No changes to earnings forecasts since the estimated ECI works are within our MYR20bn FY25F job replenishment assumption. Hence, our SOPderived TP of MYR10.52 (which bakes in an 8% ESG premium) remains. We reaffirm our view that GAM remains undervalued, trading at 18.3x FY26F P/E, not too far from the 16-17x P/E range seen during the 2017 upcycle when outstanding orderbook was just c.MYR7.4bn vs c.MYR31.4bn now.

• Long term catalysts in Australia. We learnt that there are plans by the Australian Government for a High Speed Rail (HSR) network to connect Brisbane, Sydney, Canberra, Melbourne and regional communities across the east coast of Australia. Should this plan materialise, it could serve as an opportunity for GAM to potentially participate in the long run.

• A key risk for the OMPH project includes not being able to secure all necessary approvals for the project to reach the implementation stage.

Source: RHB Securities Research - 7 Nov 2024