Gamuda to cement foothold in Australia

HLIB said Gamuda’s acquisition was strategic in nature as it would extend the company’s reach into Western Australia from its current established base in the states of New South Wales and Victoria.

PETALING JAYA: Gamuda Bhd’s shares gained about 2% yesterday on optimism that its proposed acquisition of an Australian transport projects business would strengthen the construction group’s foothold in the land Down Under.

The counter closed at RM4.15 a share yesterday, up nine sen from the previous day.

Gamuda had, on Wednesday, announced that it had entered into an agreement to buy Downer Transport Projects (DTP) from Downer EDI and VEC Civil Engineering Pty Ltd for a cash consideration of A$212mil (RM636mil).

The acquisition was slated for completion by the end of the second quarter of this year.

Hong Leong Investment Bank Research (HLIB) said the acquisition would cement Gamuda’s position to ride on the robust infrastructure construction market in Australia.

“We are positive on the acquisition due to strategic reasons, the decent acquisition price and order-book expansion,” the brokerage wrote, adding that further contract catalysts are expected for Gamuda in mid-2023.

In its report yesterday, HLIB said Gamuda’s acquisition was strategic in nature as it would extend the company’s reach into Western Australia from its current established base in the states of New South Wales and Victoria.

It further noted the acquisition price translated to an enterprise value-to-earnings before interest, tax, depreciation and amortisation (EV/Ebitda) multiple of four times, a discount to the historical trading EV/Ebitda multiple of five to seven times for construction businesses in Australia.

Price-earnings (P/E) wise, the transaction came in at a decent historical P/E multiple of 7.5 times.

At present, Gamuda’s wholly owned Australian subsidiary, DT Infrastructure Pty Ltd, carried an unbilled construction orderbook of A$3.3bil (RM10bil).

The proposed acquisition was expected to inject A$2bil (RM6.1bil) upon completion.

“This would bring Gamuda’s consolidated order book closer to RM22bil,” HLIB said.

HLIB maintained its “buy” call on Gamuda, with a higher target price (TP) of RM4.88 a share, up from RM4.15 previously.

This came after the brokerage raised its earnings estimates for Gamuda for the financial year ending July 31, 2024 (FY24) and FY25.

TA Research has also maintained its “buy” call on Gamuda but with an unchanged TP of RM4.73 a share.

“Overall, we are positive on the proposed acquisition as it will help Gamuda to immediately increase its customer base, contacts, and geographical exposure across Australia,” the brokerage said.

“Gamuda can leverage on DTP’s network and track record to bid for upcoming job opportunities which include Sydney Metro West Stations and Line-wide Works,” it noted.

TA Research viewed the total purchase consideration of RM636mil, which worked out to be around 7.5 times FY22/FY23 earnings, as fair and reasonable.

“We believe funding will not be an issue given the group is sitting with a healthy net cash position of around RM700mil as of December 2022, following the disposal of the toll business,” it said.