This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023
No stranger to The Edge Billion Ringgit Club (BRC), industry stalwart Gamuda Bhd has clinched the award for highest return to shareholders over three years in the construction sector for the second year running. Gamuda also won the same award in 2013 and 2015.
The latest win comes on the back of a stellar uptrend in its share price, buoyed by strong earnings growth as well as the prospect of more contracts that the construction group could secure.
During this year’s award evaluation period between March 31, 2020, and March 31, 2023, Gamuda’s share price rose from RM2.419 to RM4.08, reflecting a three-year compound annual growth rate of 19.04%. Gamuda’s market capitalisation, which was at RM10.85 billion at the BRC membership cut-off date as at end-March this year, has since climbed to RM12.4 billion, with its share price closing at RM4.62 on Oct 27.
The rise in Gamuda’s share price came in tandem with the growth of its earnings over the last three years. In the financial year ended July 31, 2023 (FY2023), Gamuda achieved record net profits of RM1.84 billion versus RM806.23 million in FY2022. This achievement is even more outstanding when compared with its net profit in FY2020 of only RM376 million. The strong earnings growth since FY2020 and the prospect of Gamuda winning more contracts both domestically and internationally led 18 of the 20 analysts that cover the stock to assign “buy” and “strong buy” calls on the counter.
At an average target price of RM4.99 per share at the time of writing, the upside potential is 8% from Oct 27’s close of RM4.62. On Sept 27, CGS-CIMB Research had a target price of RM5.65, the highest ascribed to the construction giant.
Gamuda’s prospects look bright, backed by a huge order book from Malaysia and abroad. As at April 30, 2023, the group’s unbilled order book stood at RM21.5 billion, with local contracts making up only 27% of it.
Its unbilled order book in Australia stood at RM12.4 billion, comprising Sydney Metro West’s western tunnelling package worth RM4.8 billion as well as RM4.5 billion worth of contracts under DT Infrastructure, which the group acquired in June 2023.
Gamuda’s top management is certainly confident in its prospects. In an analyst briefing after the announcement of its FY2023 results, it said it aimed to double the company’s revenue in FY2024 to between RM17 billion and RM18 billion, which is more aggressive than the earlier guidance of RM13 billion.
In a note on Sept 27, CGS-CIMB Research said: “[Gamuda] said this was on the assumption of faster recognition of its existing order book of RM21.8 billion as at July 31, 2023, more than doubling of its property revenue year on year to RM6 billion, backed by lumpy recognition of RM6.7 billion unbilled sales for projects in Singapore, the UK and Australia (where accounting recognition is upon project completion), and strong take-up for its quick turn-around projects.
“It continues to guide for RM25 billion in total new orders in FY2024 to FY2025F.”
In Malaysia, major infrastructure projects are expected to be rolled out next year, according to the 12th Malaysia Plan mid-term review presented by Prime Minister Datuk Seri Anwar Ibrahim in September, with an additional RM15 billion in development expenditure being set aside for the five-year period between 2021 and 2025.
Over the next three to 15 months, Gamuda expects to clinch six major projects: the MRT3 tunnelling; the Suburban Rail Loop East second package in Australia; an infrastructure project in Taiwan; the Pan Borneo Sabah highway; the Penang LRT; and a renewable energy project in Malaysia.
The prospect of a major infrastructure push starting next year, as well as the nascent recovery in the property sector, spells good fortune for Gamuda from next year.
In a report dated Sept 29, Kenanga Research, which has an “outperform” call and a target price of RM5.45 on Gamuda, also sees the construction giant as the front-runner for the Bayan Lepas LRT and tunnelling job for MRT3. The research house also likes Gamuda for its job wins in Australia and Singapore “that speak eloquently for its competitiveness in the international market”; its strong earnings visibility, underpinned by a robust outstanding order book of RM20.6 billion; and its efforts to expedite growth in the renewable energy space in line with global sustainability goals.
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