KUALA LUMPUR (March 2): Gamuda Bhd rose to a nearly five-month high on Wednesday (March 2) after the construction firm bagged a RM6.5 billion Aussie tunneling package, its largest to date.
The counter gained as much as 10 sen or 3.23% to RM3.20 on Wednesday morning, the highest level since Oct 29, 2021.
At 11.48am, the counter settled at RM3.19, still up nine sen or 2.9%. At RM3.19, the counter was valued at RM7.79 billion.
The counter saw 3.34 million shares traded.
Gamuda announced on Tuesday that the company via the Gamuda Australia and Laing O’Rourke Australia consortium had bagged the Sydney Metro West — Western Tunnelling Package Project worth RM6.5 billion.
This is Gamuda’s maiden rail tunneling contract in Australia and by far the largest overseas tunneling contract secured to date.
On Wednesday, analysts lifted Gamuda's earnings forecasts after the job win.
Kenanga Research analyst Goh Yin Foo said in a note that he was positively surprised by the win as he had not expected Gamuda to clinch the contract and the quantum of the contract is also much larger-than-expected.
“In view of the win, we raise our FY22 (financial year ending July 31, 2022) replenishment assumption to RM12.5 billion, catering for additional RM5 billion reclamation works at Penang South Reclamation.
“In tandem with the increased replenishment, our FY22/FY23 earnings estimates are raised by 15%/28%,” he said.
With an outstanding order book standing at RM10.4 billion post win, he said his previous concerns over earnings falling off a cliff past Mass Rapid Transit Line 2 (MRT 2) are alleviated.
He also upgraded Gamuda to "outperform" from "market perform", with a higher target price (TP) of RM3.60 (from RM2.80), as Gamuda’s recent wins in Australia and Singapore had pivoted the company into the international infrastructure space and relinquished a great reliance on domestic job flows which are currently lacklustre due to government funding constraints.
Meanwhile, CGS-CIMB analyst Sharizan Rosely said in a note that the group foresees its order book to double to about RM20 billion over the next 1.5 to two years, which is a positive surprise.
“Construction earnings are set to rebound from FY22. We raise our FY22 to FY24 earnings per share (EPS) forecasts by 8.4% to 18% as we factor in the RM10.4 billion new outstanding order book at a 10% pre-tax margin,” he said.
Given the significant improvement in the tender pipeline, he lifted his contract win assumptions for Gamuda from RM1 billion to RM2 billion per annum to a base-case RM5 billion per annum in FY23 to FY24.
For FY22, he believes further upside to its RM7.4 billion total wins year-to-date could come from: the RM2 billion Rasau water treatment plant, an estimated RM1 billion to RM2 billion SMART tunnel equivalent, a flood mitigation project proposal and one ongoing bid in Australia.
He reiterated "buy" on Gamuda and raised his TP by 16 sen (4%) to RM4.05 as the company is poised to enter a contract upcycle phase.
Affin Hwang Investment Bank analyst Loong Chee Wei also said the Aussie tunneling project will more than triple Gamuda's remaining order book to RM10.4 billion, equivalent to 3.2 times FY21 construction revenue and improving its earnings visibility.
He lifted his core EPS forecasts for Gamuda by 8% to 9% for FY22 to FY23 assuming higher profit margins for its MRT 2 project and factoring in contributions from the new contract win.
“Gamuda remains a top sector [pick] and 'market buy', with a higher 12-month TP of RM4.12 (from RM4.05 perviously),” he added.