GAMUDA: Construction Group Posts Mixed Earnings Amid Project Delays, Target Price Revised Downward

A leading construction group has reported a 4.9% year-on-year increase in net profit for the second quarter of financial year 2026 (2QFY26), reaching RM229.5 million. Despite this growth, the results fell short of both internal forecasts and consensus estimates for the full year, representing only 34.2% and 37.4% of the respective projections.

The shortfall was primarily attributed to several factors, including slower-than-expected property launches in Hanoi, delays in the rollout of key public infrastructure projects within Malaysia, and weaker-than-anticipated overseas earnings, as most international projects remain in their nascent stages. This led to a downward revision of FY26-28F earnings estimates by an average of 14.5% by the analyzing bank.

Despite the overall miss, the group’s performance was bolstered by robust contributions from its domestic engineering & construction (E&C) division and strong showings from quick turnaround projects (QTPs) in Vietnam. Domestic E&C revenue increased by 12.4% year-on-year, with its net profit growing by 20.1% to RM77.8 million. This growth was facilitated by a strategic shift in project mix towards domestic contracts, which helped improve margins, with the E&C net margin edging up to 4.8% from 4.7% a year earlier. Similarly, the overseas property division recorded a significant 39.1% surge in net profit to RM51.9 million, largely driven by strong QTP contributions in Vietnam.

Future Outlook and Strategic Initiatives

The group’s prospects are supported by a formidable outstanding construction order book of RM44.0 billion. The pipeline for new project wins remains encouraging, with an estimated RM20 billion in new contracts anticipated by the end of calendar year 2026. These opportunities span diverse sectors including water infrastructure, data centers (DC), renewables, rail, and highways across key markets such as Malaysia, Australia, and Taiwan.

For its property division, while first-half FY26 property sales were below expectations, declining 9% year-on-year to RM1.6 billion due to delayed launches in Vietnam, sales are projected to pick up. An RM10 billion property project pipeline is slated for launch over the next 12 months across Malaysia townships and cities in Vietnam and Singapore, aiming to sustain growth. Furthermore, the group is actively building recurring income streams by leveraging joint ventures and concession agreements in renewable energy, water, and digital infrastructure, with projects like the Ulu Padas Hydro, Northern Perak Water Supply Scheme, and solar farms with battery storage poised to generate long-term cash flows.

In light of these developments, Public Investment Bank (PIVB) maintains its “Outperform” recommendation for the stock. However, it has revised its sum-of-the-parts (SOTP) based target price downwards to RM5.60, from its previous target of RM6.20, reflecting the adjusted earnings estimates.