Tunnelling and rail expert Gamuda Berhad has secured its latest win in Taiwan with a NTD14.5 billion (approx. RM2.13 billion) underground railway project from the Taiwan Ministry of Transportation and Communications’ Railway Bureau, a state-owned railway company.
Gamuda remains MIDF Research’s top pick for the construction sector, premised on its effective diversification strategy out of Malaysia in a bid to become a strong regional player. This also shields Gamuda from being too overly exposed to the ups and downs on the construction sector cycle in Malaysia, though it is one that the research house has a positive call on, with the impending rollout of the MRT3 breathing a new life into the sector.
MIDF Research has also stated in its research report that it believes more excitement can be expected from Gamuda in the coming months, as it is optimistic on its chances for more mega projects such as package CMC303 of the upcoming MRT3 and two more projects in Australia that it was shortlisted for. All factors considered, the research house is maintaining its BUY recommendation on Gamuda.
Project details. The project involves works for the Pingzhen Commuter Station, under Package CJ18 of the Construction and Completion of the Taoyuan City Underground Railway Project, to be completed in eight years. The package was awarded to Gamuda and Taiwanese firm Asia World Engineering & Construction Co (AWEC), who will be undertaking the job via an unincorporated JV on a 60:40 basis.
The package includes a construction of a 3.734km underground twin bound railway track with an underground commuter station at Pingzhen, beneath an existing train station. Other scope of works include protection works for the Zhongfeng Bridge, relocation of the Laojie river bridge and the construction of a temporary above ground commuter station in Pingzhen.
Financial impact of the Taiwanese project on Gamuda. The group’s share of the revenue is expected to be RM1.28b. Assuming a rather conservative margin of 6%, the project is expected to deliver net earnings of about RM76.8m, or RM9.6m annually until FY31.
Another record high. Gamuda’s continues to outdo itself by setting another outstanding order book high of RM15.28b, which is heavily weighted towards overseas jobs, providing it strong earnings visibility up to FY26. The bulk of it still comes from jobs in Australia, totalling RM8.2b, or 53.7% of its order book. The new job win in Taiwan lifts its outstanding jobs in Taiwan to RM2.28b. The other components of its order book are RM3.3b of jobs in Malaysia and RM1.5b in Singapore. This is in line with management’s aim of making Gamuda a regional player.
Upcoming special dividend. The restructuring of the four major highway concessions – Kesas, Sprint, Litrak and Smart– was completed on Oct 13 which saw all four entities fully acquired by Amanat Lebuhraya Rakyat (ALR), marking Gamuda’s exit from the toll concession business. This also means that the much-awaited special dividend will soon be issued, which the research house expects it to be in December. Gamuda’s 43.2%-owned Lingkaran Trans Kota Holdings Bhd recently announced a special dividend of RM4.57, with an ex-date of November 10, of which payment will be received on November 18. It is expected Gamuda to announce its special dividend of 38 sen per share towards the end of November, equivalent to about RM1b of its RM2.33b in total proceeds.
Earnings estimates. MIDF Research is making no changes to our earnings estimates as the new job win is in line with its expectation.
Target price. The research house is maintaining its TP of RM4.71, which was arrived by pegging a forward PER of 15x based on +0.5SD above its three-year historical mean to the group’s FY23 EPS of 31.4 sen.
