Gamuda Bhd, through its joint venture (JV) partner Ferrovial Construction, has been selected as an early contractor for a pumped hydro project in Australia that is expected to award at least AU$1 billion by the fourth quarter of 2025, if approved, as the JV is set to take on more EPCC1 projects, reported Kenanga Investment Bank Bhd (Kenanga Research).

The construction group, through its 50:50 JV with Ferrovial Construction, has been selected as the Early Contractor Involvement (ECI) for the Oven Mountain Pumped Hydro project in New South Wales, Australia. This is the most advanced pumped hydro project in the state, playing a critical role in energy transition efforts.

A pumped hydro project is a renewable energy system that store energy by moving water between two reservoirs at different elevations to generate electricity.

Ferrovial Construction is not new to Gamuda, as the JV previously secured a AU$1.35 billion contract for the main package of works on the Coffs Harbour Bypass in Jun 2022.

Kenanga Research has kept it FY2024/252F estimates and RM14.5b job win assumption unchanged, while raising its FY2025/263 earnings forecast by 11% based on higher forecast figures of contract value, construction revenue, and EBIT4 margin.

The higher contract assumption worth RM17 billion, up from RM15 billion is likely to be contributed by more job wins overseas, while the construction revenue forecast has been increased to RM11.5 billion, up from RM10.5 billion. The EBIT margin for construction, on the other hand, has been raised to 10% from 9% on the assumption of higher margin from data centre projects, taking into consideration recent DC job win where Gamuda may take on up to 10%-15% in pre-tax margin for accelerated work.

Analysts favour GAMUDA for being in the driver's seat for the Mutiara Line of the Penang LRT, its ability to secure new jobs in overseas markets, its strong financial standing after the disposal of its toll highways, its strong earnings visibility underpinned by a record
outstanding order book of RM31.4b (excluding Penang LRT and this pumped hydro project), and lastly, its inroads into renewable energy.

Kenanga Research has reaffirmed the OUTPERFORM call for Gamuda with an upward revision to the target price to RM10.80, from RM9.20.

As at 4:04pm Nov 7, Gamuda's shares traded at RM8.82, down by 13 sen from its previous closing price of RM8.95 recorded on Wednesday.

Nevertheless, the Australian pumped hydro project has yet to receive final approval or reach a final investment decision (FID), hence future work with this project is not guaranteed. However, the JV is expected to eventually take on the EPCC works, as it will work closely with the
client as ECI partners. The EPCC award timeline, once the project is approved and reaches FID, is estimated for the last quarter of 2025.

Analysts are bullish on GAMUDA as this is the fourth contract news in two weeks. Aside from the pumped hydro project, it has secured a total of four contracts worth RM6.67 billion year-to-date (up to Nov 7) for FY2024/25, during the first three months plus of the financial year.

With a stronger project pipeline expected in the near future, including the Penang LRT Mutiara Line, several data centre awards, and projects in Australia, its target of achieving an outstanding order book of RM30 billion to RM35 billion by the end of 2024 appears attainable.

1. EPCC: Engineering, procurement, construction and commissioning ︎
2. FY2024/25: Financial year to end July 31, 2025 ︎
3. FY2025/26: Financial year to end July 31, 2026 ︎
4. EBIT: Earnings before interest and tax ︎