‘Minimal’ impact seen on earnings from Singapore job

(File pic shows Gamuda's tunnelling works in Malaysia

PETALING JAYA: Gamuda Bhd’s contract win in Singapore worth S$467mil (RM1.45bil) is likely to have minimal impact on the group’s earnings.

The contract is for the proposed Defu station at Singapore’s eighth MRT line, the Cross Island Line Phase 1 (CRL1), undertaken by a 60:40 joint venture (JV) between Gamuda Bhd Singapore Branch and Wai Fong Construction Pte Ltd.

The project spans over eight years and is expected to bump Gamuda’s order book to RM4.7bil.

Several research houses have decidedly maintained their earnings forecast on Gamuda as they estimated that the project would churn at least 5%-10% profit margins, which is about RM43mil to RM87mil.

“Although we estimate the project will contribute RM6mil-RM11mil in net profit per annum (eight-year duration at 60% JV stake on 5%-10% pre-tax margin range), or 1%-2% of FY22 and FY23 earnings per share (EPS), it is still a meaningful award in terms of expanding its overseas rail presence.

“No changes to FY22-FY24 EPS given the minimal impact,” said CGS-CIMB Research in a report.

It added that overseas rail contract margins are lower than the typical Gamuda pre-tax margin of 10%-15%, such as the MRT project in the Klang Valley, given a more competitive tender process.

MIDF Research expects Gamuda to face some minor issues for the Singapore project.

This is as the Land Transport Authority of Singapore has warned that excavation works at the project area are expected to be challenging, as the ground conditions comprise thick and soft layers of marine clay and soil-like material comprising sandy and silty clay.

“We expect this to be a minor issue for Gamuda, coupled with the vast experience of Wai Fong Construction.

“However, a risk highlighted by Gamuda could be the availability of foreign staff and labour due to the evolving immigration policy and border restrictions due to the Covid-19 pandemic,” it said.

MIDF Research has also maintained its earnings forecast, pending earnings guidance and further clarity from Gamuda’s management regarding the project.

“We have yet to receive earnings guidance on this particular project but we expect that its profit contribution will bolster Gamuda’s earnings positively.

“We postulate a potential top line contribution circa RM870mil over the project lifetime.

“Assuming a conservative margin of between 7% and 10%, this translates to a potential profit contribution of between RM7.6mil and RM10.9mil annually from 2022 to 2030,” it added.

TA Research pointed out that the project win in Singapore would mitigate Gamuda’s concentration risk of being overly reliant on local construction projects, given that sentiment in the local construction sector remains relatively weak.

“Although this is a small contract for Gamuda (effective order book RM870mil), we are optimistic about the job win because the group is increasing its overseas exposure.

“Gamuda is not unfamiliar with Singapore as it is currently involved in the construction of Gali Batu Bus Depot in Singapore,” it said in a note to clients.

The project is expected to commence in the second quarter of this year and be completed by 2030.