KEY INVESTMENT HIGHLIGHTS

• Gamuda-Ferrovial JV selected for ECI works for proposed pumped hydro project in NSW
• Potential project size of AUD1.5b (RM4.35b), expected to be awarded by 4QCY25; Gamuda's portion expected to be RM2.18b
• Outstanding order book on track to RM35b by end-2024
• Maintain BUY with an unchanged TP of RM9.64

ECI partners for NSW hydro project. Gamuda and its joint-venture (JV) partner Ferrovial Construction (50:50) were recently selected by Alinta Energy as the early contractor involvement (ECI) partners for the Oven Mountain Pumped Hydro project in New South Wales (NSW), Australia. This is expected to pave the way for a much larger EPCC contract when the project progresses towards the implementation stage.

Mega hydro project in the making. According to Alinta Energy's website, the pumped hydro project's size is AUD1.5b (RM4.35b).

Assuming a size of 1% to 2% for ECI, this works out to RM43.5m- RM87.0m, of which Gamuda's portion would be half, i.e. RM21.8m- RM43.5m. This involves the Gamuda-Ferrovial JV working with Alinta Energy on the project's design, geotechnical site investigation, and decisions on procurement of materials and labour. As the project has yet to receive its final approval or reached its final investment decision, one of the JV's main roles in the ECI is to address any potential issues such as environmental, land acquisitions or other issues in order to secure the necessary approvals. Management expects the project to progress to the implementation stage by 4QCY25.

Details of the project. The proposed Oven Mountain Pumped Hydro is a 900MW "off-river" facility located adjacent to the Macleay River between Armidale and Kempsey. Among construction or upgrades needed when the project is approved include upper and lower reservoirs, an underground hydroelectric power station, power waterway and access tunnels, among others. The project is expected to take five years to construct.

RM30b to RM35b of order book by end 2024. The ECI package has no major impact on Gamuda's outstanding order book which stands at RM31.4b currently. If the progress achieves implementation stage as per management's expected timeline, we expect Gamuda to replenish a further RM2.18b to its order book based on its JV portion of 50%. To recap, the group has set an order book target of RM30b to RM35b by end-2024 and we expect it to surpass the higher end of the target. The group expects this to grow further to RM40b-RM45b by CY2025, after taking into account an estimated burn rate of RM12b to RM13b annually.

Earnings estimates and TP. We maintain our earnings projections and our TP at RM9.64, derived by pegging Gamuda's FY26F EPS of 52.1 sen to a PER of 18.5x, based on +1SD above its four-year mean from FY15 to FY18 during the previous construction upcycle.

Maintain BUY. We are positive on Gamuda's involvement in the ECI package for the Oven Mountain Pumped Hydro project as it paves the way for the larger EPCC contract, which will further enhance its Australian project portfolio, especially renewable energy (RE) projects. As Gamuda continues to tender for traditional infrastructure projects Down Under, it is also pursuing opportunities in RE projects, which are now gaining traction in Australia. Gamuda remains our favourite for the construction sector, backed by its successful overseas expansion plan; its consistency in clinching sizeable jobs and it being a front runner for most mega projects in Malaysia. All in, we are maintaining our BUY recommendation on Gamuda.

Source: MIDF Research - 7 Nov 2024