GAMUDA: Strong Australian Growth and Synergies Underpin Positive Outlook

An recent investor briefing highlighted a highly optimistic outlook for the company’s construction operations in Australia, with management emphasizing robust project pipelines and strategic advantages set to drive significant earnings contributions in the coming years. The positive sentiment is primarily fueled by the strong performance and future prospects of its Australian subsidiaries, DT Infrastructure (DTI) and Gamuda Engineering Australia (GEA).

Robust Project Pipeline and Strategic Positioning

DTI, acquired in June 2023, boasts an impressive outstanding order book of approximately AUD2.5 billion, complemented by an additional AUD2.0 billion in preferred Early Contractor Involvement (ECI) projects. Key ventures include work packages for Stage I of Marinus Link, the ECI job for Carmody’s Hill Wind Farm, and the Fortescue Rail Maintenance project. A significant portion of the ECI pipeline consists of effectively secured Engineering, Procurement, Construction, and Commissioning (EPCC) jobs in the renewable energy segment, predominantly solar-related projects. Management underscored the low execution risk for these projects, citing early engagement through the ECI process and strong federal funding support. DTI is also actively targeting the defense sector, including opportunities within the AUD25 billion Henderson Defence Precinct.

GEA further strengthens the Australian portfolio, holding an outstanding order book of AUD2.5 billion and an active tender book of AUD10 billion. The division anticipates over AUD50 billion in potential new opportunities between FY27 and FY29, driven by Australia’s expanding renewable energy sector, ongoing road infrastructure upgrades, and increasing demand for transmission grid upgrades. GEA plans to expand into transmission and grid-related EPCC works, with projects like the Hunter Transmission Projects and New England Renewable Energy Zone in its sights.

Margin Improvement and Future Growth

Australia is projected to become the largest contributor to the company’s engineering division’s profit, estimated at 40-50% of the division’s total earnings between FY26 and FY28. Management is actively pursuing margin improvement for its Australian construction operations by employing selective tendering strategies and leveraging synergies between GEA and DTI. This combined platform, sharing technical expertise and optimizing procurement, is expected to achieve better pricing and reduce subcontractor dependence, leading to higher, more sustainable margins. The PBT margin for Australian construction operations is forecast to remain in the 6-8% range for FY26, gradually improving to 8-10% thereafter, particularly with newly secured projects expected to carry stronger margin profiles.

While management noted the declining value of traditional infrastructure contracts, this is largely offset by a larger volume of work. The outlook for data centre projects in Australia remains subdued due to structural constraints like water availability and high construction costs, though the company remains open to viable opportunities in this segment. Overall, the company’s focus will diversify beyond infrastructure into renewable energy spaces.

Analyst Recommendation

TA SECURITIES maintains a BUY recommendation on the stock, reiterating its Sum-of-Parts derived target price at RM6.58. This target price incorporates a 3% ESG premium, aligning with the company’s 4-star ESG rating.