GAMUDA: New Highway Contract Bolsters Order Book, ‘Buy’ Rating Maintained

A leading infrastructure company has received a significant boost to its order book with a new MYR1.1 billion contract win. This strategic achievement reinforces the investment bank’s “BUY” recommendation for the company, citing a robust project pipeline and strong future prospects.

Project Win Fuels Growth

The company’s 30% associate, Naim Gamuda (NAGA) JV, has secured the MYR1.1 billion contract (excluding sales & service tax) from the Regional Corridor Development Authority (RECODA) for the Northern Coastal Highway, Limbang Work Package Section 1 (NCH WP1). This project, estimated to be completed in 48 months from the date of site possession, will see an effective portion of approximately MYR0.5 billion for the company, with an estimated pre-tax profit (PBT) margin of around 8%.

The NCH WP1 project involves the construction of approximately 14.7 km of four-lane dual carriageway highway in the Limbang area, encompassing bridges, flyovers, earthworks, and other associated works. This is part of the larger c.88km Northern Coastal Highway project, which is expected to cost over MYR6 billion and connect Limbang and Lawas to the Sabah border. The NAGA JV has a proven track record, having previously secured the MYR1.6 billion WP04 Pantu Junction to Batu Skrang stretch for the Pan Borneo Highway Sarawak and the MYR224 million Second Trunk Road (Package B3) project, indicating manageable execution risks for the latest NCH WP1 job.

Robust Order Book and Future Outlook

The latest outstanding order book now stands at an estimated MYR37.7 billion. The company aims to achieve an order book target of MYR40-45 billion by end-CY25. To meet this target, the company needs to secure new jobs worth MYR6.3-11.3 billion between now and end-December, assuming a burn rate of MYR1 billion per month. Near-term wins are anticipated from projects such as the Sabah water supply scheme or data centre jobs in the Klang Valley area.

Recommendation and Valuation

The investment bank has maintained its “BUY” recommendation, with a Sum-of-the-Parts (SOP)-derived target price of MYR6.52, which represents a 15% upside from the last traded price of MYR5.65. This target price incorporates an 8% ESG premium, reflecting the company’s strong environmental, social, and governance practices.

While the company is currently trading at 23.2x FY26F P/E, which is at a premium to the Bursa Malaysia Construction Index’s 10-year mean P/E of 14x, the bank believes there is still room for its valuation to increase. This is primarily backed by its robust data centre (DC) capabilities and its involvement in renewable energy projects across Australia and Malaysia, which provide a stable avenue for recurring income. The company’s overall ESG score of 3.4 out of 4 is excellent, with strong performance in environmental, social, and governance aspects, including active greenhouse gas emissions studies, carbon traceability, and a focus on safety and good corporate transparency.

Key Risks

A primary risk to the company’s outlook is a slower-than-expected job replenishment rate, which could impact its ability to meet the ambitious order book target by end-CY25.