Gamuda (GAM MK) – Positive on Upper Padas HEP, but Setback at Rasau
Recommendation: BUY
- Target Price: MYR 8.00
- Previous Price Target: MYR 7.25
- Date of Recommendation: September 9, 2024
- Broker Company: Maybank Investment Bank Berhad
Investment Thesis:
Gamuda, a leading engineering and construction company, has secured a joint venture (JV) to develop the Upper Padas Hydroelectric Project (HEP) in Sabah. This project marks a significant milestone in the company’s renewable energy (RE) expansion, offering both construction profits and long-term recurring earnings through a 40-year power purchase agreement (PPA).
Key factors driving the positive outlook include:
- Upper Padas HEP Project:
- Gamuda has a 45% stake in the JV and will undertake the construction of a dam in Tenom and Sipitang, Sabah.
- The project has a maximum generating capacity of 187.5MW and will contribute 1,052GWh of energy per year.
- Construction will span six years, starting in 2025, with operations expected by December 2030.
- Earnings Impact:
- The total project cost is estimated at MYR 4 billion, with Gamuda’s share of the engineering and construction (E&C) works expected to be around MYR 2 billion.
- The recurring revenue from the PPA will start in 2031, providing additional long-term income.
- Setback at Rasau:
- Separately, work at the Sungai Rasau water supply scheme was halted due to a pond embankment collapse. However, Gamuda expects the project’s completion date in 2025 to remain unaffected.
Financial Metrics:
- Revenue Growth: Gamuda’s revenue is projected to increase from MYR 11.3 billion in FY24E to MYR 13.8 billion in FY25E, driven by its strong order book and new projects.
- Core Net Profit: Expected to grow from MYR 912 million in FY24E to MYR 1.1 billion in FY25E.
- Net Gearing: Gamuda’s net gearing stood at 0.36x as of April 2024, providing sufficient balance sheet strength to undertake new projects.
Conclusion:
Gamuda’s involvement in the Upper Padas HEP, alongside its robust order book and strategic focus on renewable energy, positions the company for continued growth. The Rasau project setback is manageable, and the overall outlook remains positive.
Thank you
