Gamuda Hits Record High: Analysts Optimistic About Malaysia's Construction Sector

On Thursday, Gamuda announced the securing of an AUD 1.6 billion (MYR 5 billion) contract, causing its share price to soar to a historic high. Although the stock price experienced a slight dip on Friday, it has still risen by more than 80% since the beginning of the year.

Although investors have responded positively to the contract, their reactions have been tempered as they have been expecting Gamuda to sign this agreement with the Public Transport Authority of Western Australia since April. The agreement aims to modernize Perth's suburban rail network.

This upgrade will increase the capacity of Perth's rail network by 40%, allowing more trains and passengers to be accommodated. The 10-year contract is expected to generate revenue of approximately AUD 737 million (MYR 2.3 billion) for Gamuda. For Gamuda, this contract not only expands the company's skills range to include railway signal system engineering in Australia, but also fills the regret of the company's failure to win the bid for the second tunnel project in the Melbourne Metro project.

According to analysts at CIMB Research, based on Gamuda's 46% stake in the winning consortium, the Perth contract will add MYR 2.3 billion to the company's order book, bringing the total order value to MYR 26.5 billion. Next, Gamuda is awaiting the results of three other Australian projects, including the full-line engineering of the Sydney Metro West (SMW), the additional station engineering of the SMW, and the Melbourne Northeast Line Metro Project (NEL).

With its current market capitalization, Gamuda is already the 21st largest company on theBursaMalaysia stock exchange and is expected to become a component stock of the FTSE Bursa Malaysia KLCI. The next benchmark index review will take place on December 24, and Gamuda is already on the reserve list of the FTSE Bursa Malaysia KLCI.

Hong Leong Investment Bank (HLIB) Research maintained its "buy" call and target price of RM9.68 on Gamuda. The research group anticipates another potential job win by the end of FY24, from the finalization of the construction value for the Upper Padas Hydroelectric Dam (estimated at RM2-3bil). "Another potential job win by the end FY24F is a package under Phase 1B of Pan Borneo Highway Sabah, which has seen about four packages already awarded out of the total 19 job packages," it said in a note.
It added that other potential job wins within the next six months include the Penang Light Rail Transit Segment 1 (about RM4.8bil for Gamuda’s 60% share in SRS Consortium), and the water supply scheme for the Upper Padas Hydroelectric Dam (estimated to be at least RM4bil), among others.

MIDF Research, which reiterated its "buy" call, has put its target price of RM7.50 under review. It said in a note Gamuda remains its preferred stock for the construction sector.

RHB Investment Bankequityresearch analyst Adam Mohamed Rahim, who has a higher-than-consensus target price of RM9.68 for Gamuda, said the latest announcement is within the bank's expectations as the Western Australian government had announced in April that Gamuda's JV with Alstom was selected as the preferred proponent for the said high-capacity signalling job in Perth. "We believe the share price rally still has legs, especially if Gamuda manages to clinch new data centre (DC) jobs going forward," he added.

The performance of the construction sector has far exceeded other sectors this year, mainly due to the market's optimistic sentiment towards the government's launch of large infrastructure projects. A large number of high-paying jobs, especially in data center construction, have also boosted the share prices of some companies, including Gamuda. The Bursa Malaysia Construction Index tracks 49 stocks in the industry and rose 0.36% on Thursday, reaching its highest level since February 2018. So far this year, the index has risen by more than 65%.

Deputy Works Minister Datuk Seri Ahmad Maslan predicts that the prospects of Malaysia's construction industry will further improve in the second half of 2024 (2H24), "this is because construction works, especially those involving allocations from the government, will begin to enter the implementation phase." He added that he believes the development speed in the second half of 2024 will have a multiplier effect on all parties involved.

In addition, Maslan stated that the construction industry is driven by two large fund allocations in the 2024 budget, totaling MYR 90 billion in development expenditures, of which 40% will be implemented in 2H24; in addition, there is MYR 90 billion from the private sector, so he expects the construction industry to become more active in 2H24.

Source: moomoo, bursa Malaysia, The Edge Malaysia