CGS-CIMB Research is optimistic that Gamuda could still deliver on high single-digit margin guidance in Australia if the SMW-WTP project continued.
PETALING JAYA: Gamuda Bhd
reveals that its Sydney Metro West-Western Tunnelling Package (SMW-WTP) in Australia has reached 40% completion to-date.
Despite comments by local officials questioning the viability of the entire Sydney Metro West (SMW) project, the Malaysian construction and property group remains confident that its sub-contract work in Australia would continue, said CGS-CIMB Research.
“Construction progress on the SMW-WTP has already reached 40% completion, with one tunnel boring machine working and another to be deployed in two months’ time,” it noted, citing Gamuda’s comments.
“It remains confident that this project is intact. It said that work is still progressing as planned and payments made to Gamuda are up to date,” the brokerage added.
Gamuda’s shares came under pressure at the start of this week following comments by New South Wales’ (NSW) premier Chris Minns, who appeared resistant to fully commit to the SMW, pending findings of a project viability review.
The SMW-WTP is part of the enlarged SMW project, which is a 24km underground metro railway that aims to connect Sydney’s Western suburbs with the East.
The SMW-WTP was awarded to Gamuda in February 2022 at a cost of A$2.16bil (RM6.5bil).
As at April 2023, SMW-WTP contributed 22% of Gamuda’s total order book of RM21.5bil.
CGS-CIMB Research estimated that in a worst-case scenario, that is, assuming a cancellation of the SMW-WTP and no compensation, this could shave 12% to 13% from its earnings forecasts for Gamuda for the financial year ending Dec 31, 2024 (FY24) and FY25.
Correspondingly, the target price for Gamuda’s shares could be lowered to RM5.35.
Presently, CGS-CIMB Research’s target price for Gamuda stood at RM5.58, based on sum-of-parts valuation. It reiterated its “add” call on the counter.
Meanwhile, the research house is optimistic that Gamuda could still deliver on high single-digit margin guidance in Australia if the SMW-WTP project continued.
“SMW-WTP is a fixed price contract, and, hence, the potential increase in contract value due to variation orders (VOs) would not be due to cost increases on Gamuda’s end,” it said.
“In our view, Gamuda should be able to fulfill its guidance of high single-digit margins, assuming the raw material price environment remains benign.
“Any potential VOs would be due to the change in scope of work for the project as a whole,” it added, noting that no management guidance was given on the amount.
Gamuda aimed to double its Australian revenue to a sustainable A$3bil (RM9.1bil) per year in two to three years, CGS-CIMB Research pointed out.
