Stock Pick: Gamuda

RHB Research has upgraded Gamuda Bhd from Neutral to Trading Buy to a TP of RM3.55 with 22% upside.

It said that its “TRADING BUY” upgrade is on the back of its recent share price dip, as we see trading opportunities ahead of immediate term developments surrounding its order book replenishment prospects

It said that it keeps its SOP-derived TP, which is based on 11x P/E multiple to construction earnings (implying -1SD below the KLCON’s 5-year mean), and after ascribing a 2% ESG premium onto our computed fair value

Gamuda reported decent 1QFY22 results, accounting for 26% of both our and consensus full-year forecasts. Despite a slight drop in revenue, core earnings rose 39% YoY to MYR152 million on stronger contribution from the Mass Rapid Transit Line 2 (MRT2) project, alongside improved operating margins.

It said that RM10 billion construction order book replenishment target for FY22 construction is seen to revolve around the Penang South Islands (PSI) project, and two tunnelling packages tendered in Australia – of which management is optimistic on securing at least one, with the outcomes expected to be known within the next two months.

As for the MRT3 project, RHB said that it is indicated that a hybrid funding model is currently under consideration. Should the proposal obtain Cabinet approval, initial tenders for civil works may come about as early as 3Q22.On the property front, management’s pre-sales target of MYR3.5 billion for FY22 (+22% YoY) appears to be on track, with 1QFY22 pre-sales totalling MYR838 million (+25% YoY). Meanwhile, its concessions business has seen expressway volumes returning to pre-pandemic levels after posting a steady recovery over the last few months

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