Gamuda is positioned for substantial expansion, underpinned by robust growth prospects and strategic advancements, as highlighted by RHB Investment Bank (RHB) in their report today (July 16, Tuesday). With a current market capitalisation of RM7.80 billion, the company is projected to achieve a 24% upside to a new target price of RM9.68.
Analysts reaffirm the group's undervalued status, noting its trading multiple of 18x FY25F Price-to-Earnings (P/E), which is comparable to levels observed during 2017 upcycle, despite its significantly expanded order book now valued at approximately RN24 billion.
RHB Investment Bank maintains a BUY rating on GAM, underpinned by its strong position amidst a robust pipeline of projects. The company's earnings Compound Annual Growth Rate (CAGR) of 16% from 2023 to 2026 is anticipated, driven by expected annual job wins exceeding MYR10 billion. Analysts highlight upcoming ventures such as the Penang Light Rail Transit Segment 1 and various hydroelectric dam projects, poised to enhance revenue streams and support future growth.
Analysts at RHB underscore Gamuda's strategic advantages in Malaysia's infrastructure sector, noting its pivotal role in significant projects like the Upper Padas Hydroelectric Dam and water supply schemes. These ventures and potential high-capacity signalling projects and data centre jobs reflect Gamuda's diversified revenue streams and its ability to capitalise on Malaysia's infrastructure development momentum.
Moreover, the group's foreign shareholding, standing at 25% as of May, signals further growth potential, backed by robust local and overseas infrastructure pipelines. This positioning is critical, especially given historical peaks in foreign shareholding during past construction cycles, underscoring investor confidence in Gamuda's growth trajectory.
RHB raises its Fiscal Year 2025 Forecast to 2026 Forecast (FY25F–26F) earnings forecasts by 8% each, anticipating gradual margin improvements in GAM's construction arm amidst a higher volume of incoming domestic projects with better margins. The bank also notes positive trends in property sales for GAM's local township projects, such as Gamuda Gardens and Gamuda Cove, situated in Rawang and Kuala Langat Districts, respectively. These developments align with broader growth trends in residential property transactions, reflecting favourable market conditions for GAM.
The analyst at the bank ascribes a higher target P/E ratio of 25x for Gamuda's domestic construction arm (up from 18.5x) and 20x for its overseas operations (up from 17x). This adjustment is justified by the absence of significant projects like data centres and hydropower ventures during the previous construction upcycle, alongside stabilised construction price indices in Australia, supporting margin enhancements.
RHB derives a new target price of RM9.68, factoring in an 8% Environmental, Social, and Governance (ESG) premium based on an upgraded ESG score of 3.4 (from 3.3).