Analysts gathered that the Gamuda’s remaining period for FY22 is expected to be driven by the continue progress of MRT2, with about RM1 billion financial recognition remaining. —Bernama photo
KUCHING: Gamuda Bhd (Gamuda) is expected to continue delivering stellar revenue and earnings in the fourth quarter of financial year 2022 (4QFY22) and FY23, following a strong set of 3QFY22 results.
Management’s results briefing left the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) feeling positive, strengthening its conviction of Gamuda as one of its top construction sector picks.
“Gamuda’s 2QFY22 core net profit soared 65.2 per cent year on year (y-o-y) to RM222.7 million, backed by stronger earnings contributions from the property and construction divisions. For the cumulative first nine months of FY22 (9MFY22), core earnings came in 46.3 per cent y-o-y higher at RM552.3 million, beating our expectations and the street’s by 13 per cent and 18.4 per cent respectively of the FY22 estimates,” MIDF Research recapped.
Looking ahead, MIDF Research gathered that the group’s remaining period for FY22 is expected to be driven by the continue progress of MRT2, with about RM1 billion financial recognition remaining. Physical completion of the project is at circa 98 per cent while the amount recognised financially trails behind at 93 per cent.
The research arm noted that construction revenue saw a decline of six per cent y-o-y to RM476.6 million for the quarter as MRT2 is almost reaching its tail end.
“Nevertheless, we expect Gamuda to see a boost in construction activities in the second half of current year 2022 (2HCY22) due to its massive contract wins over the past months.”
MIDF Research also gathered that Gamuda’s outstanding order book is now at a record high of RM12.4 billion from RM3.8 billion at the start of the year, bolstered mainly by its job wins in Australia, which now comprises RM8.5 billion or 68.5% of its total order book.
“Unbilled order book in Malaysia is at RM1.7 billion while that in Taiwan and Singapore are RM1 billion and RM1.2 billion respectively. All these provide earnings visibility up to FY26. Management expects the portion of local jobs to catch up in the near future.”
As MIDF Research had expected, Gamuda has confirmed setting its target on package CMC303 of the upcoming MRT3, the largest package with the longer portion of underground works spanning 10km plus 6km of elevated works.
The research arm’s back-of-the-envelope calculation estimated this package to be RM14.29 billion.
“Gamuda confirmed that it will once again partner MMC to bid for CMC303 and will only focus on that particular package.”
On margin compression, MIDF Research recapped management guiding that the spike in cost in terms of raw materials, labour and fuel has minimal impact to its margins, due to the cost escalation clauses in most of its contracts.
“Exposure limit to projects such as MRT2, Pan Borneo and projects in Taiwan are low, or near zero. In some cases, Gamuda may even make marginal gains in instances of cost escalations.
“For projects in Australia, the risk is limited to a certain extent, such as the Coffs Harbour Bypass, which includes escalation clause for main materials like bitumen and diesel.
“Procurement against budget for Sydney Metro West (SMW) is on track but management is starting to see price escalation pressures. Although it does not come with escalation clauses, management believes the client would be able to release some cost buffer that has been built in.
“Future contracts will feature a form of cost sharing for escalations, instead of lump sum design and build contracts.”
Overall, MIDF Research is positive on the construction sector, in line with the rollout of MRT3 in Malaysia, impending rollout of various infrastructure projects and Gamuda’s strong foothold in Australia as it continues to clinch mega projects there.
“We like the fact that it will continue to distribute dividends at pre-pandemic levels and we are positive on the potential sale of the group’s highway concessions, likely to be completed in August, which will see bumper dividends issued to shareholders.”