MIDF Research, AmInvestment Bank Bhd and Hong Leong Investment Bank (HLIB) have maintained their respective “buy” calls on the Gamuda counter.
MIDF remains the most optimistic, giving it a target price (TP) of RM5.04 followed by HLIB with RM4.88 and AmInvest with RM4.73.
However, RHB Investment Bank Bhd offered a more lukewarm reception, making a “neutral” call on Gamuda with a TP of RM4.35.
Gamuda posted a net profit of RM194.61 million for Q2 2023, up 10% year-on-year from RM177 million previously.
While the group’s financials took a hit from the loss of its highways, which came close to RM35.43 million in Q2 2022, an increase in offshore earnings made up for the setback.
Gamuda tripled its offshore earnings to RM97.58 million, accounting for more than half of its overall earnings. This was led by investments in Australia and Vietnam.
“It is notable that about 38% of its core earnings for the period came from its overseas operations,” MIDF said.
It noted that profit margin before tax narrowed slightly from 15.4% in H1 2022 to 13.3% in H1 2023, attributing the change to the completion of the MRT2 project and lower margins from its Australian projects.
Nevertheless, the narrower margins appear to be a drop in the bucket when compared to the group’s impressive order book.
“The group’s outstanding construction order book remains at a record high of RM20.5 billion, with earnings visibility up to FY26/FY27. The bulk of the order book now comes from Australia, which makes up RM14.6 billion or 71.2% of the total amount,” MIDF said.
New opportunities
Analysts believe Gamuda is likely to secure an award for the main packages of the MRT3 project.
Recent news reports suggest that the MMC-Gamuda partnership is the lowest bidder for package CMC303 at RM13.3 billion, which is the largest package with a significant underground portion.
“This gives the partnership an advantageous position to secure the main package, as the second lowest bid, reportedly from IJM Corp, came in at RM13.8 billion,” MIDF said.
Gamuda’s management has also confirmed that the group will bid for the systems turnkey contract. Although this has yet to be opened for tender, estimates place the value of the contract at RM5 billion to RM7 billion.
Beyond the MRT3 project, AmInvest believes Gamuda has a good chance of securing a portion of the Suburban Rail Loop (SRL) East project in Australia.
In the second quarter, the group managed to secure the RM1.2 billion M1 Motorway project in Australia.
“Gamuda’s order book also includes the A$2 billion (RM6 billion) acquisition of the Australian transport project business (Downer Transport Project). The acquisition is expected to be completed in mid-2023,” AmInvest said.
Property sales to drive earnings
Property sale is the second key driver of Gamuda’s earnings.
RHB noted that the segment saw a 17.7% year-on-year jump in profit before tax to RM77.4 million in Q2 2023 from RM65.8 million in Q2 2022, supported by projects in Vietnam.
Projects in Vietnam account for 90% of its gross development value (GDV) abroad.
However, with Vietnamese developers defaulting on their bonds and resorting to asset sales to cover their obligations, Gamuda has a challenge ahead.
Nonetheless, RHB has revised its forecast earnings for the period from FY23 to FY25 to the 9% to 14% range to account for faster billing of overseas projects.
Key risks to the positive calls include eroding margins from higher construction costs and labour shortages, and slowdowns in the Vietnam property market.
At noon break, Gamuda’s share price fell 0.97% to RM4.10, giving it a market capitalisation RM10.90 billion.