GGS International (CGS), in its Company Note today (Mac 11), regards Gamuda Berhad as an unjustified blue-chip construction laggard on track to achieve RM25bn in new orders by FY25F alongside A$8bn potential new orders from Australia in near term including VOs for SMW-WTP.
CGS thinks the results due end-Mar24 will track guidance of doubling in FY24F revenue. Potential upside to pretax margins in FY25F-FY26F.
Gamuda is trading at just 11x CY25F P/E on the back of 3-year EPS CAGR of 14% (CY22-CY25F) and anchored by its strong orderbook of RM26bn (as at Oct-23) — on the back of visible earnings growth. CGS reiterates Add and SOP-derived TP of RM6.50 as the contract awards to pick up soon.
It is on track to achieve RM25bn in new order wins by FY7/25F where its existing orderbook was RM26bn (as at Oct 23). In terms of timing, CGS thinks the more immediate wins by mid-CY24F will be RM10bn Penang LRT, Pan Borneo Sabah Phase 1B and Australia infrastructure projects.
For Australia, there are 4 projects (3 in Victoria, 1 in New South Wales) amounting to A$8bn where awards could start by mid-CY24F and continue over a 1-year period.
The nearer potential wins will be additional VOs for its existing Sydney Metro West-Western Tunneling (SMW-WTP) package for 4 stations (2 existing which were not approved to be built out and 2 new stations) and Suburban Railway Loop second package in Victoria.
Key downside risks: potential labour issues and higher raw material costs.
Key re-rating catalysts: more construction wins and stronger property sales.
Potential MRT 3 and data centre wins
For projects in the data centre space, Gamuda is focusing on only projects in Klang Valley given the proximity of its Industrial Building Systems (IBS) plant in Banting.
Gamuda believes its IBS plant will give it a competitive advantage in terms of higher project pretax margins of >20% (double of MRT tunnelling) and faster completion time of just 8 months.
To put things into perspective, assuming Gamuda clinches one RM500m data centre project a year, it will be able to replicate the income of a RM6bn MRT project over a 6-year period.
The bonus for construction is if MRT 3 is awarded by 1H23 and has also submitted a Request for Financial Information (RFI) for KL-SG High Speed Rail.
Gradual margin expansion post FY24F Gamuda’s 2QFY7/24 results are due end-March and CGS thinks it will reflect its guidance on doubling of FY24F revenue to RM16bn.
But net profit growth will be more subdued at 15%, based on CGS’s forecasts. This is given the high margin tunnelling MRT 2 project and Celadon City in Ho Chi Minh City (HCMC), Vietnam have been completed while the Australian infrastructure projects carry lower pretax margins of 6-8% and it has also sunk its costs for its Malaysian property townships.
FY25-FY26F group pretax margin should start to rise although CGS’s assumptions assume it to be flat at 9% once Australian infra projects achieve more scale and offshoring of its design and back-office work to Malaysia happens (savings of 1.5% pts), new US$1.1bn GDV Vietnam project in the prime district 2 area of (HCMC) is launched in late-CY24F and MRT 3 tunnelling starts to contribute.
