Gamuda earnings to get boost from resumption of construction projects

The firm is driven by the tail-end profits for MRT2 and Celadon City project in Vietnam 


GAMUDA Bhd’s results for the financial year ended July 31, 2021 (FY21) was higher than expected, propelled by stronger construction and property earnings as works are resuming on the back of rigorous Covid-19 control measures. 

MIDF Amanah Investment Bank Bhd analyst Ummar Fitri and CGS-CIMB Securities Sdn Bhd analyst Sharizan Rosely are retaining their ‘Buy/Add’ call on Gamuda but lowering its target price. 

Sharizan stated that Gamuda’s earnings beat expectations with 12% year-on-year (YoY) growth in core net profit, driven by the tail-end profits for Mass Rapid Transit Line 2 (MRT2) phase one and Celadon City project in Vietnam, while MRT3 remains on the cards. 

“Its FY21 results were 19% to 22% above our and consensus full-year forecasts; the outperformance came from stronger than expected fourth quarter (4Q) earnings and lower tax rates. 

“FY21 revenue fell 4% YoY, weighed by weaker toll highway revenue, mainly for Lebuhraya Damansara-Puchong and Shah Alam Expressway, where traffic volume fell to 60% of pre-pandemic levels,” Sharizan wrote in a note yesterday.

He added that Gamuda is optimistic about the recently tabled 12th Malaysia Plan. Although MRT3 was not mentioned, the project remains in the pipeline and could take a new approach and re-emerge as a priority project once a new project model and funding plans are in place.

“The group did not discount the likelihood of MRT3 partially taking on the public- private partnership model as the government is still very keen to explore ways to best roll out MRT3,” he added.

Separately, the RM5 billion Penang South Islands project has hit a setback, with an expected 8-month delay to allow for a resubmission of environmental impact assessment (EIA) approvals. 

This followed a recent court ruling in favour of the fishermen community’s appeal to revoke the EIA approvals. 

“On the overseas front, the group revealed it has diversified into the UK property market with two projects with a total RM792 million gross domestic value, while the outcome of the two ongoing tenders in Australia (RM5 billion to RM10 billion) is expected in Dec 21 and Feb 22,” he said. 

Ummar noted that there would be a potential Australia contract win in the next six months for Gamuda. 

The group’s joint venture (JV) with the reputable construction company, Laing O’Rourke, could be a likely successful bidder for the “Sydney Metro West Project”. 

“We understand the JV is one of three bidders with a potential win for one of the two tunnel packages under the project worth about RM7.5 billion which could be awarded in the late first quarter of calendar year 2022, extended due to change of tender specifications. 

“Gamuda has also been shortlisted for Western Sydney Airport Metro’s tunnelling works worth RM7.5 billion, with the outcome expected in December,” he noted. 

He added that Gamuda has a higher likelihood of clinching the airport’s tunnelling deal as well, premised on the fact that it is the only contender with a local JV partner (BMD Constructions Pte Ltd) backed with and its extensive experience in tunnelling projects such as the completed SMART tunnel project in Kuala Lumpur. 

MIDF raised Gamuda’s earnings per share for FY22-FY23 by 3% to 7.5% on recovery of construction billings and having RM4.5 billion outstanding orderbook, as well as lower tax rates.