A positive breakthrough in Australia tenders
? Gamuda has secured its largest overseas rail tunneling job in Sydney.
? Order book triples to RM10.4bn; aiming to double to c.RM20bn was a positive surprise – focus on Australia, Singapore, Taiwan, and MRT 3.
? Contract upcycle phase looks imminent; Add retained with higher RM4.05 TP.
Sydney Metro West tunneling package award: the largest to date
Gamuda has been awarded a RM6.5bn Sydney Metro West (Western Tunnel package) contract. This is Gamuda’s maiden rail tunneling contract in Australia and by far the largest overseas tunneling contract secured to date. The contract was awarded to a consortium comprising Gamuda (as the lead contractor) and Laing O’Rourke Australia Construction Pty Ltd as the delivery partner/project manager. As the lead contractor, Gamuda will execute the entire RM6.5bn package over the next 3.5 years (completion in 2025). Funding is entirely by the government of New South Wales (NSW). Project pretax margins are likely in high-single digits; and could potentially fetch low double-digit pretax margins given the design and build nature of the contract.
Order book triples to RM10.4bn; three strategic markets for growth
YTD, including the recently secured Defu tunneling and stations contract in Singapore worth RM870m (effective value at 60% stake), Gamuda has secured RM7.4bn worth of tunneling jobs. This triples end-Feb outstanding order book to RM10.4bn. For Gamuda, overseas order book growth will be strategically focused in three markets: Singapore, Taiwan, Australia – backed by aggressive public transport and underground civil works construction plans over the next 10 years. Australia has now emerged as a more exciting growth market: A$15bn addressable tender pipeline (RM45bn) with a targeted A$5bn6bn potential wins (RM15bn-18bn) or c.30% success rate. This arguably surpasses Malaysia’s job prospects, in our view. Over the next 1.5-2 years, the group foresees order book to double to c.RM20bn, which was the key positive from Gamuda’s briefing.
Infra earnings to rebound; raising FY22-24F EPS by 8.4-18%
Construction earnings are set to rebound from FY22F. We raise FY22-24F EPS by 8.4- 18% as we factor in the RM10.4bn new outstanding order book at 10% pretax margin. Given the significant improvement in tender pipeline, we lift our contract win assumptions from RM1bn-2bn p.a. to our base-case RM5bn p.a. in FY23-24F. For FY22F, we believe further upside to RM7.4bn total wins YTD could come from: 1) RM2bn Rasau water treatment plant (WTP), 2) est. RM1bn-2bn SMART tunnel-equivalent, flood mitigation project proposal, and 3) one ongoing bid in Australia. Tender visibility has improved.
Gamuda enters contract upcycle phase; TP raised to RM4.05
We raise our TP by 16 sen (4%) to RM4.05, on incremental CY23F construction net profit, still based on a 10% RNAV discount. Reiterate Add rating as Gamuda is poised to enter a contract upcycle phase. Upside risk: securing MRT 3 contract (potential tenders in 2HCY22). Downside risk: unsuccessful overseas bids and further delays in MRT 3.