GAM: Construction Group Posts Strong First Quarter, Order Book Outlook Positive

A leading construction and infrastructure development group reported a robust performance for its first quarter of fiscal year 2026, with core net profit reaching MYR207 million. This represents a 3.7% year-on-year increase and comfortably met 16% and 15% of both the investment bank’s and the Street’s full-year estimates. Analysts deem the results to be in line with expectations, anticipating stronger quarters ahead as key projects advance.

Performance Review

The construction division was a significant contributor, recording a profit after tax (PAT) of MYR155.2 million, a 10% increase year-on-year. This growth was underpinned by a higher mix of domestic earnings, which accounted for 61% of the segment’s total, up from 49% in the prior year’s corresponding quarter. The construction segment also saw an improved net margin of 5.1%, compared to 4.6% in 1QFY25.

Conversely, the property development arm experienced a 6% year-on-year decline in PAT for the quarter. This was primarily attributed to the absence of lumpy earnings from a West Hampstead project in the UK which had contributed significantly a year ago. Despite this, property sales for the quarter amounted to MYR846 million, representing 15% of the MYR5.5 billion sales target for FY26. Growth in the property sector is expected to be buoyed by the Vietnam market, which still holds over MYR2 billion in gross development value (GDV).

Robust Order Book and Future Prospects

The group’s target of securing MYR40-45 billion in its order book by the end of calendar year 2025 remains intact. With a current balance order book of MYR37 billion as of end October, and accounting for an estimated burn rate of MYR1.3 billion per month for November and December 2025, the outstanding order book is projected to stand at MYR34.4 billion by year-end if no new jobs are secured. To meet the lower end of its target, the group would need to replenish at least MYR6 billion worth of new jobs, which analysts believe is achievable.

Highly anticipated potential wins by end CY25 include an estimated MYR1 billion share in Stage 1 of the Marinus Link project, an AUD2-3 billion share in the Sydney Metro West stations package, and at least MYR1 billion share in the Carmody’s Hill Wind Farm.

Looking further ahead, the group aims for a potential order book of MYR50-55 billion by the end of calendar year 2026. This aggressive target would necessitate securing MYR25-30 billion in new jobs in FY26, assuming an order book of MYR40 billion by end CY25 and an annual burn rate of MYR15 billion. The group is actively pursuing tenders totaling approximately MYR50 billion, split across domestic (c.MYR10 billion), Australia (c.MYR30 billion), and Singapore/Taiwan (c.MYR10 billion) markets, which analysts believe makes the target achievable.

Valuation and Risks

Analysts have maintained their earnings estimates, viewing the first-quarter results as within expectations. The target price remains unchanged, reflecting confidence in the group’s valuation, which includes an 8% ESG premium. Despite trading at a premium to the broader Bursa Malaysia Construction Index (18.8x FY27F P/E versus the 10-year mean of 14x for the index), room for higher valuations is seen, supported by the group’s data centre capabilities and a significant opportunity pipeline in Australia exceeding AUD50 billion for FY27-29. A key risk to this positive outlook is slower-than-expected job replenishment trends.