GAMUDA: Construction Group Poised for Strong Earnings Growth, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM6.64 (+18.4%) |
| Last Traded | RM5.61 |
| Recommendation |
A leading investment bank has reiterated a “BUY” rating for a prominent construction group, raising its target price to RM6.64 from RM5.33. The upgrade comes as the group is poised for stronger sequential earnings in the fourth quarter of FY25, driven by improved project recognition and a robust long-term outlook.
Performance Review
The group anticipates its 4QFY25 core earnings to fall within the RM250-290 million range, primarily due to accelerated progress in its data center (DC) and Australian infrastructure projects. While sequential growth is strong, year-on-year performance for the quarter is expected to be relatively flat, attributed to a softer property development segment. This softness is largely due to delays in project approvals in Vietnam. Despite near-term earnings volatility, the firm maintains strong confidence in the group’s long-term earnings visibility, underpinned by its substantial RM39.8 billion order book. A significant portion of this, RM25.4 billion (64%), is still in the early stages of the construction S-curve, indicating future revenue recognition. The firm noted improved margins from a rising share of domestic projects, which typically yield higher profit before tax margins (10-12%) compared to overseas jobs (8%). This shift in revenue mix is expected to drive a 24% compounded annual growth rate (CAGR) in core net profit over FY24-27E.
Strategic Initiatives and Future Outlook
The group is actively diversifying its order book and reshaping its earnings profile, particularly through an aggressive push into the fast-growing renewable energy (RE) space. It is in the process of finalizing 3.3GW of RE assets in Australia and Malaysia, including wind-solar farms and a CRESS solar farm, which are expected to generate sustainable, long-term recurring income streams and significant EPCC (engineering, procurement, construction, and commissioning) opportunities. The robust tender pipeline includes key projects such as RM4-6 billion Pearl Computing DC packages, RM6 billion Sydney Metro West stations, RM4 billion Sabah water treatment, and RM3 billion additional Penang LRT works. The recent approval of the MRT3 Circle Line in July 2025 is expected to catalyze a new upcycle for the construction sector, with the group being a prime beneficiary. To meet its RM40-45 billion order book target by end-CY25, the group needs to secure an additional RM7-12 billion in new wins, a goal deemed well within reach given the active tender pipeline.
Valuation and Recommendation
The investment bank reaffirms its “BUY” recommendation, raising the 12-month Sum-of-Parts (SOP) derived target price to RM6.64. This revised valuation incorporates a rolled-forward valuation horizon to FY27E, better reflecting the earnings visibility from its extensive order book and the valuation of new water concession assets. The new target price implies a FY27E PER of 23x, positioning it at +2 standard deviations above its 10-year historical mean. This premium is justified by the group’s consistent contract flow, strong execution track record, and increasing exposure to high-growth RE and data center projects. Key risks to this optimistic outlook include potential delays in project execution, slower-than-expected contract wins, weaker property sales, and cost overruns.
