• Keep BUY with MYR11.67 TP, 22% upside, 2% FY25F yield. Gamuda's 1QFY25 (Jul) core net profit of MYR200m (+6.5% YoY) made up 19% and 17% of our and Street's estimates. We deem results to be in line as we envisage stronger quarters ahead supported by higher progress billings of jobs in Australia and also overseas property projects in Vietnam. We continue to favour GAM for its steady flow of job wins of at least MYR15bn annually for FY24-27 and a better portion of higher-margin domestic jobs ahead. This backs our three-year earnings CAGR (FY24-27F) of 21%.
• GAM's 1QFY25 construction PAT of MYR141.5m (+21% YoY) came from higher earnings contribution from overseas projects - especially Australia - and some domestic projects. While the net margin of the construction arm was lower at 4.6% in 1QFY25 (1QFY24: 5.2%), this was higher than 4QFY24's net margin of 4% due to higher mix of domestic earnings at 49% in 1QFY25 vs 38% in 4QFY24. Higher contribution of upcoming higher-margin local jobs should improve construction margins in the coming quarters.
• The property segment saw a 17% YoY drop in PAT for 1QFY25, mainly due to the completion of Celadon City in Vietnam while newly-launched quick turnaround projects (QTP) such as Eaton Park (GDV: MYR4bn) and The Meadow (GDV: MYR254m) (also in Vietnam) are still in early stages of contribution. Other QTP projects in Vietnam (Springville and Hai Phong with total GDV of MYR2.9bn) and maturing townships like Gamuda Gardens may propel the segment's growth in addition to the unbilled sales of MYR6.9bn (end-1QFY25) vs MYR6.7bn (end-1QFY24).
• Orderbook. With an outstanding orderbook of MYR30bn as of end-October and YTD FY25 new job wins of MYR6.7bn, we expect GAM to clinch another MYR18bn worth of new jobs for the remainder of FY25. Well-flagged near-term job wins include the Penang Light Rail Transit Mutiara Line (estimated at MYR5bn for GAM's 60% share in SRS Consortium) and the Sabah water supply scheme for Upper Padas Hydroelectric project (estimated at MYR3bn). Therefore, other projects that may be secured in FY25 include: i) A mix of renewable energy (RE) projects from Australia, ii) shortlisted stations package of Sydney Metro West, and iii) a few data centre (DC) jobs as GAM is ready to handle eight DC jobs vs its three jobs currently (Figure 3).
• No changes to our earnings estimates as we deem results to be in line. Hence, our SOP-derived TP remains unchanged at MYR11.67 (which bakes in an 8% ESG premium). Key opportunities to look out for domestically include new type of offering by bundling land and utilities-related services (water and power) for DC jobs and also the latest venture into artificial intelligence which has an addressable market of >MYR30bn to tap into. Internationally, GAM is eyeing AUD25bn worth of RE projects in Australia, which sits well with the need for 6GW of wind and solar power each year between now and 2030 to meet the country's 82% RE target mix.
• A key risk is slower-than-expected job replenishment trends.

Source: RHB Securities Research - 13 Dec 2024