AI and cloud new growth pillar
| Price | RM4.89 |
| Fair Value | RM5.50 |
| 52-week High/Low | RM5.38/RM3.47 |
| Key Changes | |
|---|---|
| Fair value | ⇔ |
| EPS | ↔ |
| YE to Jul | FY24 | FY25F | FY26F | FY27F |
|---|---|---|---|---|
| Revenue (RM mil) | 13,346.7 | 15,541.1 | 21,726.5 | 26,823.9 |
| Core net profit (RM mil) | 912.1 | 1,054.3 | 1,408.0 | 1,691.6 |
| FD Core EPS (sen) | 32.3 | 17.5 | 23.4 | 28.1 |
| FD Core EPS growth (%) | 6.0 | (45.8) | 33.5 | 20.1 |
| Consensus Net Profit (RM mil) | 1,002.0 | 1,385.0 | 1,658.0 | |
| DPS (sen) | 16.3 | 8.5 | 11.4 | 13.7 |
| PE (x) | 15.1 | 27.9 | 20.9 | 17.4 |
| EV/EBITDA (x) | 30.8 | 20.5 | 15.3 | 12.6 |
| Div yield (%) | 3.3 | 1.7 | 2.3 | 2.8 |
| ROE (%) | 8.2 | 8.9 | 10.9 | 11.9 |
| Net Gearing (%) | 44.9 | 42.6 | 31.0 | 19.6 |
Stock and Financial Data
| Shares Outstanding (million) | 5,957.9 |
| Market Cap (RMmil) | 29,134.1 |
| Book Value (RM/Share) | |
| P/BV (X) | |
| ROE (%) | 8.2 |
| Net Gearing (%) | 44.9 |
| Major Shareholders | |
| EPF (14.0%) | |
| Amanah Saham Nasional (4.1%) | |
| Generasi Setia M Sdn Bhd (4.0%) | |
| Free Float | 86.3 |
| Avg Daily Value (RMmil) | 106.2 |
Price performance
| 3mth | 6mth | 12mth | |
|---|---|---|---|
| Absolute (%) | 29.7 | (5.8) | 34.9 |
| Relative (%) | 22.4 | (0.6) | 42.0 |
Rationale for report: Company Update
Investment Highlights
We met with Gamuda’s Group Chief Digital Officer and visited the Gamuda Innovation Hub. We came away feeling positive about its new venture. Gamuda has built internal expertise and integrated technology into its existing business verticals to improve efficiencies. On top of that, Gamuda is rapidly expanding its presence in the cloud and Al space through two major strategic initiatives, namely the JV with Dnex and minority investment in Cloud Space. These initiatives could potentially create a new core business – cloud and Al service alongside its current business pillars namely, engineering, construction and property. We maintain BUY on Gamuda with unchanged SOTP-based TP of RM5.50, implies CY26 PER of 21.5x.
- BUY on Gamuda with TP of RM5.50. Our new SOTP-based TP of RM5.50 implies CY26 PER of 21.5x, which is equivalent to +2SD to its 10-year average. The premium is justified by continued growth in orderbook, supported by strong job flow from public infrastructure work, data centre construction and overseas jobs in Australia and Taiwan.
- Integrating technology in the existing business verticals. Over the years, Gamuda has built proprietary digital applications and embedded them into its key business segments. We believe this gives Gamuda an edge over other construction players in the market. Gamuda Engineering has adopted Gamuda Digital Operating System with the objective to improve tender win rates, boost construction efficiency and enhance margins, while Gamuda Land has integrated to improve customer experience and sharpen marketing effectiveness. During the visit, Gamuda did showcase some of the proprietary applications such as Bot Unify (internal generative Al), augmented reality (to visualise the construction site), tunnel insight (global TBM IoT live monitoring) and GL Connect (generative Al offers tailored recommendation to house buyers).
- Building a third business pillar. In addition to its two core business pillars, Gamuda is rapidly expanding its footprint in the cloud and Al space through two major strategic initiatives i.e. JV with Dagang Nexchange Berhad (Dnex) and minority investment in Cloud Space. The group is eyeing both public and private cloud markets in Malaysia, with Google Distributed Cloud (GDC) air-gapped services giving it a competitive edge. GDC services cover hardware procurement, Al solutions, app development, client support, data migration, and infrastructure maintenance. The total addressable market for Al cloud in Malaysia is estimated at RM40bil. These initiatives could contribute meaningfully from FY26 onwards, potentially offering upside to our forecasts and TP, as no contributions are currently factored in.
Company profile
Established in 1976, Gamuda is Malaysia’s largest listed construction company. The group’s topline contribution consists of: (a) construction service (79% of FY24 revenue) and property development (21%). Gamuda has a strong track record of involvement in public infrastructure works particularly through direct negotiations e.g. KVMRT. The group has exposure in both domestic and oversea markets, with the most recent foray in Australia since 2020.
Gamuda was listed on the main market of Bursa Malaysia in 1992.
Investment thesis and catalysts
Best proxy to the Malaysia public infrastructure space. Gamuda has long been hailed as the Malaysian construction champion with a strong and established track record in public infrastructure works particularly for rail projects in Malaysia. The Group is also the only player with tunneling capabilities.
Beneficiary of the data centre theme. Data centre projects have seen a significant surge over the past year. Gamuda is one of the few players currently in direct negotiations with hyperscaler client given its ability to deliver projects on time.
Overseas orderbook expansion. Over the past five years, Gamuda has been growing its overseas share of orderbook in order to hedge against a more cautious domestic scene. The Group has exposure in Australia, Taiwan and Singapore.
Valuation methodology
Our SOTP-based TP of RM5.50 implies a CY26 PER of 21.5x, which comes at >+2SD to its 10 year average of 12x.
Risk factors
Key downside risks to our call:-
- Delay in project rollouts;
- Rising building material costs; and
- Project cost overrun.
EXHIBIT 1: SOTP VALUATION
Source: AmInvestment Bank
| Segment | Basis | Valuation (RM bil) |
|---|---|---|
| Construction & Engineering | 20x PER to CY26 net profit | 20.9 |
| Property Development | RNAV | 17.9 |
| Investment Properties | 1x P/B | 0.6 |
| Water Concession | DCF of FCFE at 6% Ke | 0.2 |
| Holdng co net cash/(debt) | -4.5 | |
| SOP Value | 35.1 | |
| Number of Shares (bil) | 6.0 | |
| SOP/Share | 5.88 | |
| Conglo Discounts (10%) | (0.59) | |
| ESG Premium/(Discount) | 3.0 | |
| Target Price | 5.50 | |
EXHIBIT 2: ESG SCORE
Source: Company, AmInvestment Bank
| Environmental assessment | Parameters | Weightage | Rating | Rationale | |
|---|---|---|---|---|---|
| 1 | Water usage | Water withdrawal | 25% | * | Total water withdrawal has increased from 1.7mil m3 to 1.87mil m3. |
| 2 | Energy usage | Renewable energy consumption (mWh) | 25% | * * | 43% of energy sourced from renewables in FY24, up from 22% in FY23. |
| 3 | Minimise waste generation | Recycled waste (tonnes) | 25% | * * * | 95% of waste produced from developments, construction sites and assets were successfully diverted from the landfill. |
| 4 | Greenhouse Gas (GHG) emissions | tCO2e emitted | 25% | * * | Scope 1 and 2 emission has reduced by 32% from 2022 baseline vs 23% in 2023. |
| Weighted score for evironmental assessment | 100% | * * | |||
| Social assessment | |||||
| 1 | Health, safety & well-being | Number of fatalities & injuries | 25% | * * * | Annual zero lost time incidents. |
| 2 | Women in workforce | % of total workforce | 25% | * * | 35% of workforce as of FY24 vs 38% in FY23. But the number of women in workforce rose from 1,588 to 2,089. |
| 3 | Employee turnover | % turnover rate | 25% | * * | Employee turnover rate remained healthy at 17% in FY24 vs 12% in FY23. |
| 4 | CSR programmes | RM | 25% | * * * | Total community investments of RM15mil benefitted 7,704 people. |
| Weighted score for social assessment | 100% | * * * | |||
| Governance assessment | |||||
| 1 | Board age diversity | % under 60 years old | 25% | * | 14% |
| 2 | Board women representation | % of total board directors | 25% | * * * * | 4 women on board or 57%. |
| 4 | Independent board directors | % of total board directors | 25% | * * * * | 57%. |
| 5 | Remuneration to directors | % of total staff costs | 25% | * * * | RM17.4mil for director remuneration in FY24, or 3.5% of staff cost. |
| Weighted score for governance assessment | 100% | * * * | |||
| Combined Score by respective Segments | |||||
| Environmental score | 30% | * * | |||
| Social score | 30% | * * * | |||
| Governance score | 40% | * * * | |||
| Overall ESG Score | 100% | * * * | |||
EXHIBIT 3: FINANCIAL DATA
Source: Company, AmInvestment Bank Bhd estimates
| Income Statement (RMmil, YE 31 Jul) | FY23 | FY24 | FY25F | FY26F | FY27F |
|---|---|---|---|---|---|
| Revenue | 8,220.4 | 13,346.7 | 15,541.1 | 21,726.5 | 26,823.9 |
| EBITDA | 1,023.0 | 1,111.0 | 1,679.7 | 2,172.1 | 2,538.7 |
| Depreciation/Amortisation | (120.2) | (165.1) | (127.3) | (140.3) | (153.3) |
| Operating income (EBIT) | 902.7 | 945.9 | 1,552.5 | 2,031.8 | 2,385.4 |
| Other income & associates | 233.4 | 325.6 | 98.6 | 94.1 | 81.0 |
| Net interest | (78.4) | (173.4) | (216.8) | (210.6) | (165.1) |
| Exceptional items | |||||
| Pretax profit | 1,057.8 | 1,098.1 | 1,434.2 | 1,915.3 | 2,301.2 |
| Taxation | (221.1) | (155.1) | (344.2) | (459.7) | (552.3) |
| Minorities/pref dividends | (22.0) | (30.9) | (35.7) | (47.7) | (57.3) |
| Net profit | 814.7 | 912.1 | 1,054.3 | 1,408.0 | 1,691.6 |
| Core net profit | 814.7 | 912.1 | 1,054.3 | 1,408.0 | 1,691.6 |
| Balance Sheet (RMmil, YE 31 Jul) | FY23 | FY24 | FY25F | FY26F | FY27F |
|---|---|---|---|---|---|
| Fixed assets | 5,946.1 | 6,012.9 | 6,435.6 | 6,845.3 | 7,242.0 |
| Intangible assets | 497.6 | 1,038.7 | 1,038.7 | 1,038.7 | 1,038.7 |
| Other long-term assets | 2,117.4 | 2,691.8 | 2,691.8 | 2,691.8 | 2,691.8 |
| Total non-current assets | 8,561.1 | 9,743.4 | 10,166.1 | 10,575.9 | 10,972.6 |
| Cash & equivalent | 3,169.5 | 2,698.9 | 2,014.8 | 2,346.1 | 2,850.6 |
| Stock | 717.2 | 612.2 | 1,099.7 | 1,558.7 | 1,937.5 |
| Trade debtors | 2,942.1 | 3,281.2 | 5,254.4 | 7,345.7 | 9,069.1 |
| Other current assets | 8,394.4 | 10,185.5 | 10,185.5 | 10,185.5 | 10,185.5 |
| Total current assets | 15,223.2 | 16,777.8 | 18,554.4 | 21,436.0 | 24,042.8 |
| Trade creditors | 3,713.0 | 4,806.3 | 6,646.7 | 9,421.2 | 11,711.1 |
| Short-term borrowings | 1,409.7 | 1,003.3 | 844.9 | 686.6 | 528.3 |
| Other current liabilities | 1,689.4 | 1,722.5 | 1,722.5 | 1,722.5 | 1,722.5 |
| Total current liabilities | 6,812.0 | 7,532.1 | 9,214.0 | 11,830.2 | 13,961.8 |
| Long-term borrowings | 5,514.0 | 6,803.3 | 6,403.3 | 5,853.3 | 5,253.3 |
| Other long-term liabilities | 531.7 | 664.4 | 664.4 | 664.4 | 664.4 |
| Total long-term liabilities | 6,045.7 | 7,467.6 | 7,067.6 | 6,517.6 | 5,917.6 |
| Shareholders’ funds | 10,791.1 | 11,365.2 | 12,282.6 | 13,507.7 | 14,979.6 |
| Minority interests | 135.5 | 156.2 | 156.2 | 156.2 | 156.2 |
| BV/share (RM) |
| Cash Flow (RMmil, YE 31 Jul) | FY23 | FY24 | FY25F | FY26F | FY27F |
|---|---|---|---|---|---|
| Pretax profit | 1,057.8 | 1,098.1 | 1,434.2 | 1,915.3 | 2,301.2 |
| Depreciation/Amortisation | 120.2 | 165.1 | 127.3 | 140.3 | 153.3 |
| Net change in working capital | (165.7) | (261.7) | (620.4) | 224.2 | 187.7 |
| Others | (607.9) | (850.6) | (344.2) | (459.7) | (552.3) |
| Cash flow from operations | 404.4 | 150.9 | 596.9 | 1,820.2 | 2,089.9 |
| Capital expenditure | (3,376.3) | (1,871.2) | (550.0) | (550.0) | (550.0) |
| Net investments & sale of fixed assets | 2,310.8 | (229.4) | |||
| Others | 832.7 | 839.0 | |||
| Cash flow from investing | (232.8) | (1,261.7) | (550.0) | (550.0) | (550.0) |
| Debt raised/(repaid) | 2,113.4 | 846.3 | (558.3) | (708.3) | (758.3) |
| Equity raised/(repaid) | 98.3 | 146.3 | |||
| Dividends paid | (1,442.7) | (100.7) | (172.6) | (230.5) | (277.0) |
| Others | 2.2 | 17.8 | |||
| Cash flow from financing | 771.2 | 909.8 | (731.0) | (938.9) | (1,035.3) |
| Net cash flow | 942.8 | (200.9) | (684.1) | 331.3 | 504.5 |
| Net cash/(debt) b/f | 1,908.4 | 2,830.6 | 2,698.9 | 2,014.8 | 2,346.1 |
| Net cash/(debt) c/f | 2,830.6 | 2,596.0 | 2,014.8 | 2,346.1 | 2,850.6 |
| Key Ratios (YE 31 Jul) | FY23 | FY24 | FY25F | FY26F | FY27F |
|---|---|---|---|---|---|
| Revenue growth (%) | 67.7 | 62.4 | 16.4 | 39.8 | 23.5 |
| EBITDA growth (%) | 37.2 | 8.6 | 51.2 | 29.3 | 16.9 |
| Pretax margin (%) | 12.9 | 8.2 | 9.2 | 8.8 | 8.6 |
| Net profit margin (%) | 9.9 | 6.8 | 6.8 | 6.5 | 6.3 |
| Interest cover (x) | 11.5 | 5.5 | 7.2 | 9.6 | 14.4 |
| Effective tax rate (%) | 20.9 | 14.1 | 24.0 | 24.0 | 24.0 |
| Dividend payout (%) | 160.8 | 48.6 | 48.2 | 48.2 | 48.2 |
| Debtors turnover (days) | 119 | 85 | 100 | 106 | 112 |
| Stock turnover (days) | 30 | 18 | 20 | 22 | 24 |
| Creditors turnover (days) | 142 | 116 | 134 | 135 | 144 |
DISCLOSURE AND DISCLAIMER
This report is prepared for information purposes only and it is issued by AmInvestment Bank Berhad (“AmInvestment”) without regard to your individual financial circumstances and objectives. Nothing in this report shall constitute an offer to sell, warranty, representation, recommendation, legal, accounting or tax advice, solicitation or expression of views to influence any one to buy or sell any real estate, securities, stocks, foreign exchange, futures or investment products. AmInvestment recommends that you evaluate a particular investment or strategy based on your individual circumstances and objectives and/or seek financial, legal or other advice on the appropriateness of the particular investment or strategy.
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