Review

• Excluding extraordinary items totalling RM5.6mn, 1QFY25 core earnings of RM199.8mn accounted for 16.2% and 16.7% of our and the consensus full-year estimates, respectively. This performance aligns with our expectations, as we anticipate stronger earnings in 2HFY25 driven by improving property sales and higher progress billing from newly secured construction projects.

• YoY, 1QFY25 core earnings rose moderately by 7.3%, despite a significant 47.5% revenue growth. The modest net profit growth was primarily due to delayed domestic awards, unresolved variation orders, and the earnings void left by the completed Celadon City project, which collectively hindered margin recovery.

• QoQ, revenue and core net profit for 1QFY25 declined by 12.4% and 26.2%, respectively. The weaker performance was largely attributed to reduced contributions from property projects and a slowdown in domestic construction activities. Correspondingly, the EBIT margin declined due to lower project margins from Australia.

• The group declared a first interim dividend of five sen per share based on the enlarged share capital, reflecting the effect of the 1:1 bonus issuance scheduled to go ex on 19th December 2024 (1QFY24: 6.0sen/share).

Briefing highlights

Construction

• GAMUDA’s unbilled construction order book stands at the record high of RM30bn, equivalent to 2.8x its FY24 construction revenue, ensuring strong earnings visibility for at least five years.

• With YTD new job wins for FY24-25 reaching RM16bn, GAMUDA has achieved the lower end of its RM30bn-35bn total outstanding order book target by year-end. However, there is potential for the group to secure additional contracts, including the finalised Penang LRT Mutiara Line package (c.RM6bn-7bn) and Ulu Padas Hydroelectric Water Scheme Project (c.RM3bn-4bn) this month, which could push the order book beyond the upper range of the target.

• GAMUDA remains confident in achieving an outstanding order book target of RM40bn-45bn by end-CY25, supported by a robust pipeline of Australian renewable energy projects valued at up to AUD25bn over the next two years. With an estimated monthly burn rate of RM1bn-1.5bn, the group would need to secure RM14bn-21bn in new job wins for FY25 to maintain its order book levels. This aligns with our FY25 new job replenishment assumption of RM20bn.

Property Development

• Despite experiencing stronger segmental revenue growth YoY in its property development division, the bottom line experienced a contraction due to the completion of Celadon City in Vietnam and the early stages of newly launched quick turnaround projects (QTPs). Nonetheless, domestic property margins are expected to improve gradually, driven by maturing local townships, while the new QTPs currently yield relatively lower margins due to their preliminary stages.

• As of end-October 2024, GAMUDA’s unbilled property sales stood at approximately RM6.9bn, providing robust and resilient earnings visibility for the future.

A New Digital Pillar

• Following the recent 50:50 joint venture with DNEX and the acquisition of a 20% stake in Cloud Space, GAMUDA is optimistic about the synergistic benefits of these initiatives. These strategic moves position the group to capitalise on the RM6bn sovereign air-gapped cloud services market and the RM36bn private sector market projected for 2025-2029. Collectively, these opportunities are expected to drive a new earnings trajectory for the group while facilitating its entry into niche and cuttingedge technology sectors.

Impact

• We maintain our FY25-27F earnings estimates unchanged.

Valuation

• Rolling forward our valuation base year to CY26 earnings, we arrive at a higher SOP-derived target price of RM12.31 (previously RM10.98), inclusive of a 3% ESG premium based on our 4-star rating. We maintain our Buy recommendation for the stock.

Source: TA Research - 13 Dec 2024