KUALA LUMPUR (Oct 26): Hong Leong Investment Bank (HLIB) Research said Gamuda Bhd's (KL:GAMUDA) end-2024 order book guidance of RM30 billion to RM35 billion looks increasingly conservative, as the engineering, property, and infrastructure company starts running down on its high-certainty domestic pipeline.
"Several projects imminent are the Penang Light Rail Transit project (RM5 billion), the Sabah water scheme (RM3 billion to RM4 billion), and data centres (RM3 billion). Partial conversion of these projects will result in Gamuda easily hitting the higher end of its end-2024 order book target. We view these domestic projects as critical towards driving Gamuda’s engineering and construction earnings going forward," the research firm said in a report on Saturday.
On Friday, Gamuda announced that its 75%-owned joint venture (JV) Gamuda-Conlay had been appointed as a total development contractor by Upper Padas Power Sdn Bhd, with a total contract sum of RM3.05 billion. This is in relation to the 187.5MW Upper Padas hydroelectric project in Tenom and Sipitang, Sabah, where the estimated total project cost amounts to RM4 billion.
HLIB Research pointed out that this is Gamuda's third contract win over the past month worth RM2.3 billion based on its effective stake in the JV. Gamuda controls 75% of the unincorporated JV, while Conlay Construction Sdn Bhd holds the remaining 25%.
"Based on Gamuda’s share, this contract win increases its order book by 8% to RM31 billion. The management expects a profit before tax margin of 10% from this project, which lies on the lower end for domestic projects. This hydro contract is part of the management’s RM15 billion pipeline guidance during its results briefing last month. We view this as a positive development, as Gamuda starts converting its high-certainty domestic pipeline," the research firm said.
The house has made slight changes to its core profit after tax and minority interest (Patami) forecasts for Gamuda, up 0.5% to RM1.17 billion for the financial year ending July 31, 2025 (FY2025), and down 4% to RM1.3 billion for FY2026. It also introduced its FY2027 core Patami forecast of RM1.57 billion.
HLIB Research also maintained its 'buy' rating, with a higher target price (TP) of RM10.52, from RM9.38 previously, derived based on a 10% discount to Gamuda's sum-of-the-parts (SOP) valuation of RM11.69. "Our revised SOP[-based TP] incorporates higher value for the Sabah hydro project and rolling over earnings to mid-FY2027," the house said.
Gamuda shares have risen 85% so far this year, closing at RM8.50 on Friday and giving the group a market capitalisation of RM23.98 billion. HLIB Research said it still sees room for the stock to surprise on the upside, given that the group is poised to sustain its contract upcycle in the coming months leading up to a potential inclusion in the FBM KLCI benchmark index.