Greater earnings visibility for Gamuda

Petaling Jaya: Gamuda Bhd’s contract win from Pengurusan Air Selangor Sdn Bhd valued at RM1.97bil is expected to provide the infrastructure group greater earnings visibility over the next three years.

Last Friday, the group said it won Package 1 of Rasau Water Supply Scheme (phase one) worth RM1.97bil. Gamuda is the main contractor for this project, which will start on July 15 and targeted for completion on June 30, 2025.

It is Gamuda’s first major job win in Malaysia for 2022 and will bring its outstanding order book to a new record high of RM14.4bil.

Where project margins are concerned, Kenanga Research said they are similar to historical levels

“Year-to-date order book replenishment stood at RM11.7bil, tracking in line with our RM12.5bil target for financial year 2022 (FY22). Consequently, outstanding order book is raised to RM14.4bil.

“Gamuda guides that the pre-tax profit margins for this project will range between 8% and 10% – similar to their historical construction pre-tax profit margins registered between FY18 and FY21, with the exception of FY20 which was affected by the pandemic,” said the research firm.

Kenanga Research noted that margins for this contract were relatively protected by price escalation clauses built in for key raw materials.

“It shows that Gamuda continues to be a strong local contender on top of securing multiple major regional wins year-to-date.”

– UOB Kay Hian Research

However, it made no change to its FY22-FY23 earnings estimates as the contract win was within the research firm’s replenishment target.

It also kept its “outperform” call with an unchanged target price of RM4.20.

Meanwhile, UOB Kay Hian Research (UOBKH) said that based on the margin assumption of 6% to 8%, the project may potentially contribute RM30mil to RM50mil per year over the contract period.

“We are positive on this new win as it shows that Gamuda continues to be a strong local contender on top of securing multiple major regional wins year-to-date,” added UOBKH.

The research house said Gamuda has managed to more than triple its order book, taking into account recent project awards, which include two major projects in Australia valued at RM8.5bil. Besides this, it has secured projects in Singapore and Taiwan.

Locally, with the MRT2 near completion, UOBKH said that Gamuda aims to replenish its order book by RM20bil in FY22-FY23 and around RM8bil to RM10bil a year after that.

The research firm expects the group’s fourth quarter of FY22 earnings to remain strong, driven by MRT2 and other property projects.

As for its proposed highway disposal, the research house noted that it was progressing well.

Following shareholders’ approval, which is expected to be secured in July, the next step would be the RM5.5bil sukuk to be raised by not-for-profit entity Amanat Lebuhraya Rakyat.

Gamuda is expected to receive RM2.3bil from this disposal, with funds going towards reinvestment, special dividends and to reduce borrowings.

“With 43% of the proceeds to be used as special dividends, this will translate into about RM1bil or 38 sen per share (dividend yield: 11%).

“Gamuda will realise a one-off gain of RM1bil, lifting its net asset value to RM4.21,” said the research firm, adding that the disposal will help to deleverage the group’s balance sheet.

Despite the volatile market, analysts expect the sale to be completed in August once the sukuk has been successfully raised.