Engineering, infrastructure and property company Gamuda Bhd (Gamuda) (GAM MK), via an unincorporated JV agreement with Asia World Engineering & Construction, has secured the YC01 work package from the Kaohsiung City Government’s Mass Rapid Transit Bureau to build the Kaohsiung Mass Rapid Transit Metropolitan Line (Yellow Line) worth MYR3.5bn.
RHB Investment Bank, in its Malaysia company update today (Oct 26), issued a BUY call with a TP (SOP) upside of MYR5.31 15%, on a 3% FY24F (Jul) yield. The Yellow Line is slated for completion within nine years. The effective share of the contract for Gamuda is MYR3bn or 88%.
Track record in Taiwan
The YC01 project entails a 4.4km railway track located within Niaosong District with an 8% PBT margin penciled in. More importantly, this is the third railway-related job secured in Taiwan after the MYR1.3bn Taoyuan City Underground Railway project and MYR809m C04 stretch of the Kaohsiung Mass Rapid Transit wins – both in Oct 2022.
Other ongoing jobs in Taiwan include a marine bridge, seawall extension, and transmission line (balance works worth c.MYR400m).
Orderbook impact
Post this job win, Gamuda’s outstanding orderbook stands at MYR24.8bn, which translates into an orderbook-to-revenue cover ratio of 4x. On further scrutiny, Taiwan jobs now constitutes c.5.3bn or 21% of its overall construction orderbook, RHB said.
Contracts from Australia, Singapore, and Malaysia make up c.46%, c.6.%, and c.27% of its orderbook.
Prospects
During the last briefing in September, management was optimistic about securing up to six large projects within the next 3-15 months. With this latest job in Taiwan secured, other upcoming potential wins include the Penang Light Rail Transit, Mass Rapid Transit 3 (MRT3), Phase 1B of the Pan Borneo Highway Sabah, another infrastructure job in Taiwan, and second package of the Suburban Rail East Loop.
More importantly, the ongoing review for the Sydney Metro West project is unlikely to impact Gamuda’s portion amid the group’s sizeable progress of nearly 40%. Additionally, DT Infrastructure’s (acquired in 2023) presence in Western Australia (c.40% of its revenue) could avoid major budget cuts, given that the state is Australia’s mining hub.
No changes to RHB’s earnings estimates, as the latest job win is within its FY24 job replenishment assumption of MYR15bn.
As such, RHB’s issued its new SOP-derived TP of MYR5.31, which takes in a 2% ESG premium, is unchanged.
RHB believes Gamuda’s current 12.9x FY24 P/E is unjustified, as it was trading at a 14x P/E in mid-2017 during the construction upcycle when its orderbook was only at MYR7.8bn vis-à-vis MYR24.8bn now.
Their BUY call is premised on its diverse geographical base for its construction and property arms with c.50% of profits coming from overseas.
A further rerating catalyst would be Gamuda’s potential to win the c.MYR4-6bn MRT3 systems package after being prequalified for the job.
Additional upsides may come from an earlier-than-expected award for the remaining package of the Suburban Rail East Loop project in Australia. Key risks include slower-than-expected job replenishment trends.
Meanwhile, Maybank Investment Bank (Maybank IB) is positive on the win and maintains BUY on Gamuda. The win has lifted its outstanding orderbook by c.15% to MYR23.6b, further strengthening its earnings visibility.
Maybank IB maintains their earnings forecasts, having already imputed job wins in their model with no change to their SOP-TP and BUY call. They remain upbeat on Gamuda’s prospects for major E&C jobs in Malaysia and overseas. Its strong balance sheet (0.25x net gearing end-FY23) supports its MYR25b job win target for the next 3-15 months.
MYR3.03b, being Gamuda’s share
Gamuda, in the JV with Asia World Engineering & Construction Co. (Gamuda 88%, AWEC 12%), has won the design-and-build of the Kaohsiung Mass Rapid Transit Metropolitan Line (Yellow Line) Civil Engineering, Package YC01, from the Taiwan Kaohsiung City Government on 25 Oct.
The contract sum is NTD23.4b (c.MYR3.45b) of which Gamuda’s 88% share is NTD20.6b (c.MYR3.03b). The contract duration is 107 months (c.9 years).
The project is a 4.4km track in the NiaoSong District comprising 3.5km underground (plus 3 underground stations) and 0.9km elevated (plus 1 elevated station).
This is Gamuda’s 2nd JV with AWEC; the first is for the TaoYuan City Underground Railway Project Package CJ18, won in Oct 2022.
Lifts o/s E&C orderbook to MYR23.6b
Maybank IB views this E&C win positively, being Gamuda’s first win for FY24 and estimates the new contract will lift Gamuda’s outstanding orderbook to MYR23.6b (from MYR20.6b end-FY23), further strengthening its earnings visibility. Outstanding orderbook in Taiwan is now MYR4.9b (21% of total MYR23.6b) vs. MYR1.9b end-FY23 (9% of MYR20.6b). This win also brings Gamuda a step closer to its MYR25b job win target in the next 3-15 months.
Maintaining earnings estimates
Assuming 8% pre-tax margin for this new contract, Maybank IB estimates MYR194m net profit (7.3sen EPS) contribution into FY33E. with a earnings forecasts which have imputed MYR10b job wins in FY24.
CGSCIMB weighed in to saying the win is important as it’s i) largest win in Taiwan, penetrating the MRT space with a main contractor role, and ii) brings it closer to its target of doubling orderbook.
Clinches RM3.5bn project in Taiwan
Gamuda has won a NTD23.4bn (c.RM3.45bn) contract with its partner Asia World Engineering & Construction Co (AEWC) for the design and build of the Kaohsiung Mass Rapid Transit (MRT) metropolitan line package YC01 in Taiwan from the Kaohsiung city government. Gamuda has an 88% stake in this project, and AWEC has 12%. The project duration is for 9 years.
AWEC is a general civil construction contractor in Taiwan, and this is the second railway project in Taiwan undertaken by Gamuda and AWEC. The first was the joint TaoYuan City Underground Railway Project Package CJ18 secured in Oct 22.
The current project win is a 4.4km railway track located within the NiaoSong District, comprising 3.5km underground twin bored tunnels (with 3 underground stations) and 0.9km of elevated tracks (with 1 elevated station).
The project is part of a substantial infrastructure initiative currently underway in Kaohsiung, Taiwan, with the primary goal of expanding and improving the Kaohsiung city’s public transportation system within the NiaoSong District.
Breaking into Taiwan’s MRT landscape with main contractor role
With this win, Gamuda would have six Taiwan projects in its orderbook, bringing its Taiwan exposure to c.RM5bn and total outstanding orderbook to RM24.8bn.
While this is not its first MRT win in Taiwan (it also won another Kaohsiung MRT project in 2002 worth RM1bn), this current win is the largest MRT win in Taiwan and also the largest overall contract win in Taiwan, where it has a substantial main contractor role with its 88% stake.
CGCIMB believes this is a result of the strong reputation it gained over the years in Malaysia, having completed MRT Line 1 and 2.
Estimated project pretax profit margin guidance is 8%, similar to its Australian projects, they said in its Company Flash Note today.
CGSCIMB understands from the company that there is another outstanding sizeable MRT tender in Taiwan, and it expects an award in the next 6 months.
Doubling of orderbook and revenue
Gamuda continues to guide for RM25bn total new orders in FY24-25F. This is largely within our forecasts, and this win brings it a step closer to achieve this target.
Over the next 3-15 months, it expects to clinch 6 major projects — MRT 3 tunnelling, Suburban Rail Loop East second package, other infrastructure projects in Taiwan, Pan Borneo Sabah highway, Penang LRT, and a renewable energy project in Malaysia.
At its analyst briefing on 27 Sep, Gamuda shared its revised target to double its revenue in FY24F to RM17bn-18bn (more aggressive than its earlier guidance of RM13bn). It said this is on the assumption of faster recognition of its existing orderbook, more than doubling of its property revenue to RM6bn, backed by lumpy recognition of RM6.7bn unbilled sales for projects in Singapore, the UK and Australia (where accounting recognition is upon project completion), and strong take-ups for its Quick Turnaround Projects.
Reiterate Add and SOP-based TP of RM5.65
CGSCIMB reiterates Add, with an SOP-based TP of RM5.65. Its current valuations of 12x CY24F P/E and 1.0x CY24F P/BV (1 s.d. below 18-year mean) still look extremely compelling, considering its strong growth trajectory and record orderbook.
Key downside risks: potential labour issues locally and abroad derailing its construction progress there, and delays in job awards. Re-rating catalysts are delivering higher-than expected new order wins, which will translate into better revenue and earnings.
