KUALA LUMPUR: Gamuda Bhd
's contract award from Pengurusan Air Selangor valued at RM1.97bil is expected to provide even greater earnings visibility to the construction player over the next three years, said MIDF Research.
According to the research firm, the contract gives an added boost to the group's outstanding orderbook, which had already provided earnings visibility until FY26.
"Taking into consideration our conservative profit margin estimates of 5%, this water treatment plant project is expected to deliver an additional RM32.8mil in net profit annually until FY25," it said in a report.
Kenanga, which has pegged Gamuda as its top construction sector pick, maintained its FY22-24 earnings estimates on the stock and target price of RM4.02.
"Our strong conviction in Gamuda lies in its huge presence in Australia with projects amounting to 59.2% of its current outstanding orderbook and the prospects of it securing more projects in the Land Down Under.
"Locally, our optimism lies in its ability with partner MMC to clinch the largest MRT3 package, the CMC303, which we estimate to be RM14.29bil," it said.
The research firm also said it is optimistic that Gamuda's margin protection measures, which include cost escalation clauses for its contracts, will mitigate the fluctuations in raw materials prices.
"During Gamuda’s 3QFY22 earnings call last Wednesday, management guided that the spike in costs in terms of
raw materials, labour and fuel has minimal impact to its margins," it said.
In other developments, MIDF is looking forward to the sale of Gamuda's highway concession to Amanat Lebuhraya Rakyat, likely to be completed in august.
The sale will see Gamuda reward its shareholders with a bumper dividend of about 38 sen per share, as well as strengthen its net cash position to north of RM1bil from the current debt level of RM1.1bil.
