This article first appeared in Capital, The Edge Malaysia Weekly on August 24, 2026 - August 30, 2026

SHARES of Gamuda Bhd (KL:GAMUDA) have remained largely unmoved despite the construction giant securing major contract wins in recent months.

Although it has secured new job wins worth more than RM3 billion, AmResearch downgraded the stock from “buy” to “hold” , citing concerns over negative free cash flow (FCF) and elevated gearing.

Negative FCF occurs when a company spends more cash than it generates from its operations.

According to AmResearch, Gamuda recorded cumulative negative FCF of RM5.4 billion from the financial year ended July 31, 2023 (FY2023) to FY2025, despite delivering a 39.4% compound annual growth rate (CAGR) in revenue over the same period. This reflects the cash-intensive nature of the group’s recent expansion drive, it said.

“While these investments have translated into a significantly larger earnings base and record order book, net gearing has risen to 73%. We believe further re-rating will increasingly depend on improvements in operating cash flow,” it said in an Aug 12 note.

Its net cash generated from operating activities has been trending downwards in recent quarters, even turning negative at RM33.01 million in the second quarter (2Q) of FY2026 before recovering to RM13.04 million in 3QFY2026.

Similarly, its net gearing ratio has risen significantly in recent years, from a low of 12% in FY2022 to 53% in FY2025.

When announcing its 3QFY2026 results last month, Gamuda explained that its net gearing ratio temporarily rose to 73% due to strategic land bank acquisitions to boost its quick-turnaround project portfolio in Vietnam and Singapore, as well as spending on the development of existing projects. As at end-FY2025, its net gearing ratio was 53%.

The group assured that the gearing will reduce from next year onwards when it generates revenue and cash flow from its record RM52 billion construction order book and unbilled property sales of RM7.4 billion as at end-July this year.

As at 3QFY2026, Gamuda had RM3.26 billion in deposits, cash and bank balances. Long-term and short-term Islamic/conventional debts were RM8.84 billion and RM4.16 billion respectively.

A fund manager, however, urges caution over Gamuda’s current risk-to-reward profile, noting that the group is stretching its resources through various capital-intensive projects.

“It has come to a point where I feel the risk-reward ratio does not justify further investments at this point in time. While Gamuda has a history of strong execution and a solid balance sheet, its aggressive expansion — including its rail projects in Taiwan and Australia — has led to high gearing and negative cash flow concerns.

“That’s why fund managers are currently adopting a ‘wait-and-see’ approach towards Gamuda due to the financial risks. Investor interest is likely to remain cautious until there is clear evidence of successful project execution and improvement in gearing levels,” he tells The Edge.

Another fund manager, however, maintains a positive view of Gamuda, categorising it as a “fundamental, long-term stock” rather than one for quick gains. “Short-term investors often ‘sell on news’ when they do not see an immediate jump in the share price following contract announcements.”

He notes that the primary concern for future growth is no longer the ability to win contracts, but the successful execution of the projects already secured. “As a capital-intensive industry, revenue recognition through progress or delivery takes years rather than months. Investors are encouraged to look past immediate cash flow volatility towards long-term earnings growth driven by the massive order book.”

He highlights Gamuda’s ability to tender for large-scale projects both in Malaysia and overseas as one of its key strengths.

In contrast, Sunway Construction Group Bhd (KL:SUNCON) has a cleaner balance sheet with zero net gearing and net cash of RM1.22 billion as at end-March 2026, as its projects are largely domestic and include in-house developments.

Gamuda’s cash-intensive expansion is not unusual for companies pursuing large-scale infrastructure and technology-related projects.

For example, massive capital expenditure on artificial intelligence infrastructure has caused US tech giant Alphabet to report its first-ever negative FCF since listing, while the company is set to raise up to US$85 billion (RM343 billion) in equity this year, of which US$45 billion has already been raised.

CGS International says the more important catalyst for Gamuda now is earnings delivery (versus contract wins) and the ability to beat Bloomberg consensus’ earnings per share (EPS) forecast — that is, 22.47 sen per share — for FY2027. EPS for 9MFY2026 was 11.92 sen.

“We believe the earnings inflection point would be in December 2026 at the earliest, when it reports its 1QFY2027 results. With the recent decline in oil prices, we expect a gradual uplift in construction margins and believe that its S-curve earnings trajectory is intact. We are comfortable with our two-year EPS CAGR of 24% for FY2026-FY2028,” it says in an Aug 13 note.

For 9MFY2026, Gamuda’s net profit rose 4.7% to RM702.63 million from RM671.08 million in the previous corresponding period. Net profit for FY2025 came in at RM1 billion, up from RM912 million in FY2024. Bloomberg consensus expects the construction giant to report a net profit of RM1.04 billion in FY2026, before climbing substantially to RM1.35 billion in FY2027.

The consensus target price for Gamuda is RM5.32, implying an upside potential of 21.7% based on last Wednesday’s closing price of RM4.37. Having hit a 52-week high of RM5.80 a year ago, Gamuda’s share price is down by more than 20%, valuing it at RM26.12 billion.

There are 19 “buy” calls for the stock, while two recommend “hold”.

Earlier this month, Gamuda secured a RM1.71 billion contract to build a hyperscale data centre in Port Dickson, Negeri Sembilan. Then a week ago, it clinched two engineering, procurement and construction (EPC) contracts for the Ganymirra and Majors Creek solar and battery hybrid projects in Australia from Edify Energy for a contract value of A$569 million (RM1.64 billion).

The latest wins have lifted Gamuda’s cumulative year-to-date new contract value to RM15.5 billion and its outstanding order book to RM56 billion.

In July, Gamuda’s joint venture also signed a 40-year agreement to supply treated water from northern Perak to Penang under the Northern Perak Water Supply Scheme.

Gamuda is also expected to continue benefiting from the second wave of the data centre boom in Malaysia, even as the rollout of public infrastructure projects slows.

The Employees Provident Fund (EPF) — Gamuda’s single largest shareholder — has been accumulating its shares in recent months, lifting its stake to 21.26% as at Aug 14, from 20.6% three months earlier and 18.12% in early October 2025.

Since the beginning of the year, however, foreign funds have been net sellers of Gamuda shares, with net selling amounting to RM1.22 billion as at Aug 13, according to CIMB Securities data.

The stock is trading at a forward 12-month price-earnings ratio of 24.9 times, comparable to SunCon’s 24.8 times and IJM Corp Bhd’s (KL:IJM) 21.9 times.

The key question for investors is whether they are willing to look beyond Gamuda’s current negative FCF position. While the group’s massive order book provides strong earnings visibility, meaningful share price upside depends on whether future earnings catch up with the scale of its contracts.

If investors believe Gamuda’s cash flow pressures are temporary, and that the company can deliver its record order book while reducing debt, the current stock price could offer major upside. 

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