• Still BUY and SOP-based MYR5.83 TP, 39% upside and 2% FY26F (Jul) yield. Gamuda, in a JV with Ferrovial signed an Early Contractor Involvement (ECI) agreement with Capricornia Energy Hub (CEH) for the Capricornia Pumped Hydroelectric Storage System (CPHES) in Central Queensland, Australia. CEH is owned by Copenhagen Infrastructure Partners, one of the world's largest clean energy investors. This is GAM's second ECI for a pumped hydro project - the first being the Oven Mountain Pumped Hydro announced in Nov 2024.
• Project details. According to the Queensland Government, the CPHES project has an investment value of AUD2.9bn with a 750MW pump and a generation facility capable of delivering power continuously for 16 hours and a water transfer volume of 18 gigalitres. We expect PBT margin for the EPCC works of the CPHES 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 CPHES project. Assuming that the EPCC contract is almost similar to the investment value of AUD2.9bn, the ECI package could be AUD58m (or AUD29m based on GAM's 50% share). As an early contractor, GAM with Ferrovial will work closely with the client to develop an EPC contract which is cost effective for the CPHES project.
• Also, GAM's and Ferrovial's role as an early contractor gives the JV a higher success rate to be the EPCC contractor for the CPHES project - whereby EPCC works are targeted to commence in CY26. Recall that GAM's subsidiary, DT Infrastructure secured an ECI package for an onshore windfarm project in Queensland in Mar 2024 before being awarded the civil works package in Sep 2024.
• No changes to earnings forecasts since the estimated ECI works are within our MYR25bn FY25F job replenishment assumption (YTD-FY25 wins are at MYR14bn). Hence, our SOP-derived TP of MYR5.83 (which bakes in an 8% ESG premium) remains. We reaffirm our view that GAM remains undervalued, trading at 16.5x FY26F P/E, very close to the 15-16x P/E range seen during the 2017 upcycle when the outstanding orderbook was just MYR7.4bn vs MYR37bn.
• Long term catalysts in Australia include faster-than-expected announcement of wins related to shortlisted contracts or ECIs not just related to renewable energy but also to railway that could be worth between AUD7bn and AUD8bn in total (Figure 1).
• Key risks: slower-than-expected job replenishment.

Source: RHB Research - 27 Jan 2025