GAMUDA: Strong Order Book Supports Future Growth Amidst Shifting Forecasts
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM6.17 (+39.6%) |
| Last Traded | RM4.42 |
| Recommendation |
A recent investment bank research report indicates a robust outlook for a prominent infrastructure and property development firm, underpinned by a significant outstanding order book and strategic project execution, even as some near-term challenges lead to revised earnings forecasts.
Performance Review
The company’s share price performance has outperformed, exceeding a 10% gain despite a backdrop of softer utilization rates. This strong showing is primarily attributed to a substantial outstanding order book of RM45.9 billion and disciplined property sales, supported by a proven execution track record across diverse markets including Malaysia, Singapore, Australia, and Taiwan.
Key factors influencing the stock performance include broad-based selling pressure on Malaysian industrial blue-chips, successful securing of exchangeable sukuk enabling larger acquisitions, and a persistent headwind from foreign selling pressure. Additionally, headline noise surrounding proposed M&A transactions in the sector has sparked concerns regarding competitive dynamics in Malaysia’s infrastructure and property development landscape.
Future Outlook and Forecast Revisions
The outstanding order book, which represents a robust 4.5 times the projected FY25 construction sector revenue, is expected to drive future growth. However, management notes that approximately 70% of the current order book remains in the early stages of the S-curve, where mobilization and preliminary works typically result in slower initial revenue and profit recognition. This acceleration is anticipated to pick up in the order book burn rate and earnings recognition from Calendar Year 2026 onwards.
Property sales for FY26 are expected to remain subdued, with a previously announced RM5.5 billion sales target seeing RM1.0 billion deferred to FY27 due to regulatory approval delays. Consequently, the investment bank has revised its earnings forecasts downward by 13.5% for FY26. Conversely, earnings forecasts for FY27 and FY28 have been raised by 2% and 9.5%, respectively, to reflect re-phased backlogs and execution realities. The report also highlights a trimming of FY26 Vietnam property sales assumptions due to regulatory-related launch delays.
Valuation and Recommendation
Despite the revision in earnings forecasts, the company’s Sum-of-Parts (SOP)-derived target price has been adjusted downwards to RM6.17, from a previous RM6.58. This valuation continues to incorporate a 3% ESG premium, reflecting the company’s 4-star ESG rating. The stock is currently trading at 5.2 times FY27 estimated earnings per share, representing a 24% discount to its five-year historical average P/E of 7.2 times.
The report suggests potential for a valuation rerating as technical pressures abate and project execution progresses. The investment bank reiterates its BUY recommendation, with a new target price of RM6.17, indicating a significant potential upside from the last traded price of RM4.42.
