Gamuda Bhd expects the financial year (FY7/24F) to be another record year for the group, including achieving a strong revenue and new recurring income stream as well as scoring higher margin data centres projects, according to CGS-CIMB.
Following Gamuda’s session at CGS-CIMB’s 16th Annual Malaysia Corporate Day 2024 on Jan 3, the research house raises its FY24F, FY25F, FY26F earnings per share (EPS) by 7%, 7% and 6% respectively.
It also increases its SOP-derived TP to RM6.50 to factor in the group’s stronger revenues for property.
“At our new TP of RM6.50, Gamuda trades at 16x CY24F EPS, which is still below its 18-year mean level of 17x,” it said in its Company Note today (Jan 8).
CGS-CIMB also maintains its ADD rating for Gamuda’s strong earnings visibility from its record-high orderbook of RM26 billion.
It said Gamuda also reiterated its guidance for revenue to double in FY7/24F to RM16 billion.
“There is also no change in its new order win target of RM25 billion per annum in FY7/24-25F; so far it has clinched RM7.8 billion (RM3 billion Kaohsiung MRT package for its 84% share in Taiwan, RM3 billion hydroelectric power plant project in Sabah, and RM1.8 billion MRT project in Singapore).
“It said the medium term wins will come from three projects in Australia worth A$7 to 8 billion, and one project a year in Taiwan, Pan Borneo Sabah Phase 1B and Penang LRT.
It noted that the group believes that the RM10 billion Penang LRT will take off by the first half of 2024 (1HCY24), faster than MRT 3.
“For MRT 3, it believes a rollout could happen in second half of 2024 (2HCY24) after the government achieves some certainty in terms of subsidy savings.”
The research house said that Gamuda expects its private finance initiative (PFI) to develop a 187.5MW Upper Padas Hydroelectric Power Plant in Sabah to be the first of a few projects to build its recurring income stream.
“It has committed to the latter to replace the income loss from the sale of its toll road business in CY22. The power plant targets to achieve financial close by the middle of 2024 and to have finalised its power purchase agreement (PPA) and tariff structure by then.
“On dividends, Gamuda said there will likely be no increase beyond the 12 sen it pays yearly; it may look to raise this only after earnings have achieved a more sustainable level when it reaches its peak orderbook in the next two years,” it added.
Similar to other large contractors like YTL Corporation Bhd and IJM Corporation Bhd, it said Gamuda is looking at projects in the data centre space.
“The differentiating factor, in our view is Gamuda’s Industrial Building System plant which will give it an edge and result in higher project pretax margins of more than 20% (double of MRT tunnelling) and faster completion time of just 8 months.
“The plant’s current utilisation rate of 50% gives it ample free capacity. To put things into perspective, assuming Gamuda clinches one RM500 million data centre project a year, it will be able to replicate the income of a RM6 billion MRT project over a 6-year period,” said CGS-CIMB.
The key downside risks for its call are potential labour issues, which could derail its construction progress, and higher raw material costs while the key re-rating catalysts are more construction wins and stronger property sales.
