This article first appeared in The Edge Malaysia Weekly on November 7, 2022 - November 13, 2022
Many in the construction industry were hit by the economic contraction over the last two years due to the Covid-19 pandemic. Gamuda Bhd, however, was bolstered by large infrastructure projects such as the MRT Putrajaya Line (MRT2).
If the RM16.5 billion allocation under Budget 2023 for the continuation of key infrastructure projects and the government’s appetite for large-scale infrastructure projects are any indication, Gamuda’s shareholders can expect the stellar performance to continue.
Over the last three years, Gamuda’s share price has increased from RM2.74 per share on March 29, 2019, to RM3.46 per share on March 31, 2022. That brings shareholder returns over the awards review period to a compound annual growth rate (CAGR) of 8.2%, making the company the winner of this year’s The Edge Billion Ringgit Club award for the highest returns to shareholders over three years in the construction sector.
Gamuda’s share price has since risen, reaching as high as RM4.06 in September this year before giving up some gains in October. On Oct 25, the counter closed at RM3.83, valuing the group at RM9.92 billion.
In its financial results announcement for the quarter and year ended July 31, 2022 (FY2022), Gamuda says the revival of public-private partnerships may provide some momentum to public spending and stimulus for infrastructure development.
Coupled with its international contracts, the momentum in public infrastructure spending is expected to benefit Gamuda in the short and medium term.
“It is anticipated that next year’s performance will be driven by property sales; the pickup in work progress of the Sydney Metro West — Western Tunnelling Package and Coffs Harbour Bypass projects in Australia; and work to complete the MRT Putrajaya Line.
“Moving forward, the resilience of the group is underpinned by its large construction order book of nearly RM14 billion and unbilled property sales of RM6.2 billion,” says Gamuda, commenting on its prospects for the current financial year ending July 31, 2023 (FY2023).
On top of that, its healthy balance sheet with net gearing of 0.1 times will turn net cash positive once the sale of four highway concessionaires (in which Gamuda is a significant shareholder) is completed. At the time of writing, this was expected to happen by end-October.
In FY2022, Gamuda recorded a net profit of RM806.23 million, compared with RM588.32 million in FY2021, a jump of 37% year on year on the back of stronger construction and property earnings as work on all fronts continued to pick up pace.
Overseas earnings tripled to RM292 million compared with FY2021 earnings of RM98 million, as the group continued to expand its footprint to broaden its international market reach, the group states in its FY2022 results announcement.
“It was a record-breaking year for the property division with all-time-high performances in sales, revenue and earnings,” it adds.
The property division sold a record high RM4 billion worth of properties in FY2022, a 40% jump from RM2.9 billion the year before. Local property sales doubled to RM2 billion as overseas projects contributed to another RM2 billion in sales.
Property revenue reached an all-time high of RM2.7 billion in FY2022, a 111% jump from RM1.3 billion the prior year, while property earnings reached an all-time high of RM340 million, a 97% jump from RM172 million in FY2021.
MIDF Research has a “buy” call on Gamuda with a higher target price of RM4.71 per share, compared with the pre-FY2022 results target price of RM4.02 per share. The counter is the research house’s top pick for the construction sector, premised on its effective diversification strategy out of Malaysia.
“This (having a diversified market) also shields Gamuda from being too overly exposed to the ups and downs of the construction sector cycle in Malaysia, though it is one that we have a positive call on, with the impending rollout of the MRT3 breathing new life into the sector.
“We are positive on management’s focus to secure RM9 billion in jobs in Australia annually. With its current portfolio, we believe Gamuda is in a good position to bid for more jobs Down Under, which is now going through an infrastructure boom period,” MIDF Research says in a Sept 30 note.
At press time, Maybank Investment Bank had a “buy” call with a RM4.40 target price, CGS-CIMB had an “add” recommendation with a target price of RM4.75, while Kenanga Research had an “outperform” call with a RM5.15 target price.
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