CGSI Research said the stock’s valuation remained attractive at 15 times 2025 price-to-earnings.
PETALING JAYA: A re-rating valuation is imminent for Gamuda Bhd
as investors warm up to the group’s better earnings delivery, outperformance in new order wins and improving margin trajectory.
CGS International (CGSI) Research in a report said the stock’s valuation remained attractive at 15 times 2025 price-to-earnings (PE) on a three-year earnings per share compounded annual growth rate of 16% for financial year 2023 (FY23) to FY26.
“Hence, we reiterate an ‘add’ call and raise our target price to RM9.50, which factors in a higher PE of 22 times for construction, updating the recent quick turnaround projects and net debt figures,” the research house noted.
CGSI Research added this is justified given the group’s record diversified order book, increasing data centre exposure and rising construction margins as local projects start to contribute.
Meanwhile, Gamuda’s current market cap of RM20bil also makes it the 24th largest and a potential FBM KLCI constituent.
The research house said, “The next review will be in December 2024 and it is already under the FBM KLCI Reserve List.
“Gamuda has lifted its annual dividend per share to 16 sen and expects this to trend up to 20 sen, when it achieves a higher revenue base and potential cash recovery from its older Vietnam property projects.”
According to CGSI Research, Gamuda’s longer-term group revenue projection for the next five years (FY24 to FY28) is to hit RM30bil in FY28 from RM15bil in FY24.
“Dissecting the construction revenue, this would imply cumulative new order wins of about RM47bil until FY27 to hit RM20bil revenue in FY28,” it added.
CGSI Research said: “We think investors will focus more on the nearer term new wins, where it is confident of achieving its target of RM25bil new orders and RM30bil order book by year-end (RM24bil as at April 2024) with year-to-date wins of RM9bil.”
In addition, the more assured wins are domestic, which will be positive for margin recovery, where the research house is projecting construction pre-tax margins of 7.7%-7.8% for FY25-FY26 versus 5.7% in 9M24.
“We expect local projects to contribute 30% of construction revenue in FY25 versus 15% in FY24,” it said.
The potential local wins include Penang Light Rail Transit, of which Gamuda’s share is about RM4bil and the Built-Operate-Transfer Upper Padas hydroelectric power plant and water treatment plant in Sabah around RM7bil-RM8bil.
The group is also confident of clinching another data centre win by end-2024 that will add to its RM2bil order book from data centres, said CGSI Research.
The outcome of the Suburban Rail Loop East second package in Victoria, Australia is expected soon, where Gamuda and its partner are one of two parties shortlisted, CGSI Research noted.
Having said that, the downside risks include potential labour shortage and higher raw material costs. Key re-rating catalysts are more construction wins and stronger property sales.
