KUALA LUMPUR (July 16): RHB Investment Bank has maintained its “buy” rating on Gamuda Bhd (KL:GAMUDA) at RM7.80 with a higher target price of RM9.68 (from RM7.69) and said Gamuda remains undervalued — explaining that it is trading at 18 times FY25F P/E, which is not far from the 16 times seen during the 2017 upcycle when the outstanding orderbook was just around RM7.4 billion versus around RM24 billion now.
In a note on Tuesday, the research house said its expectation of job wins of at least RM10 billion per annum backs house 3-year earnings CAGR (2023 to 2026) of 16%.
RHB IB said Gamuda may potentially clinch another data centre (DC) job in FY25, as its industrialised building systems or IBS factories can accommodate two to three DC jobs with a total capacity of about 200MW at one go.
“A bonus for Gamuda would be if it were to clinch highway projects in Sarawak and Sabah, [that is] new phases of the Pan Borneo Highway and Northern Coastal Highway.
“We raise our FY25F-26F earnings by 8% each as we anticipate gradual margin improvements for its construction arm on higher volume of incoming domestic jobs with better margins.
“We tweak our property sales recognition trends too amidst better prospects, particularly for Gamuda’s local township projects, [that is] Gamuda Gardens (Rawang in Gombak District) and Gamuda Cove (Kuala Langat District) — both districts have seen growth in residential property transactions to the tune of 11% and 45% year on year in 1QCY24,” it said.
RHB IB said the target P/E for Gamuda’s local construction wing is justified, as DCs and hydropower projects were absent during the circa 16 times peak reached during the CY17 construction upcycle.
“Meanwhile, the revised target P/E for overseas construction is warranted amidst a more stable construction price index in Australia, which facilitates margins improvement,” it said.
At the time of writing, Gamuda had added 0.63% or 5 sen to RM7.95 with 1.02 million shares traded.