KUALA LUMPUR (Feb 13): RHB Investment Bank has raised its target price for Gamuda Bhd to RM6.46 (from RM5.66) on the back of a positive outlook for the company’s industrialised building system (IBS) products within the burgeoning data centre market.
In a research note on Tuesday, RHB said Gamuda is in a sweet spot to capture data centre opportunities within the Klang Valley with its IBS capabilities, in light of Tenaga Nasional Bhd’s establishment of the Green Lane Pathway which aimed to facilitate a smoother and faster setup of data centres in the country.
Pointing to the RM170 million project awarded to Gamuda by AIMS Data Centre in February last year to construct a data centre in Cyberjaya, RHB underscored the potential profitability of such ventures with an estimated profit before tax (PBT) margins between 10% to 12%.
“We believe that the data centre could be the 8MW AIMS Cyberjaya Block 2 data centre whereby Gamuda utilised its Next-Gen Digital IBS solutions,” it said.
“Although IBS job orders are modest at only 1.5% of the order book at end-FY2023, we learned that Gamuda is currently eyeing some data centre jobs within the Klang Valley. In the event data centre jobs become more sizeable, we believe the group can fully utilise both factories to accommodate these orders,” it added.
Gamuda currently operates two IBS plants, one located in Banting and the other in Sepang, boasting a combined maximum capacity of 10,000 residential units per year. Its IBS capabilities could reduce the construction period by 50% for high-rise and 20% for landed buildings.
As such, RHB raised its target price-to-earnings ratio for the construction arm to 15 times from 14 times.
“We take the view that Gamuda’s current price-to-earnings ratio for the fiscal year 2025 forecast [FY25F] of 12.6 times is undemanding as it was trading around 16 times in mid-2017 during the construction upcycle when its orderbook was only at RM7.8 billion compared to RM27 billion now,” it remarked.
The target price has incorporated a 6% ESG premium, considering Gamuda’s utilisation of concrete recycling systems and green cement in its IBS plants.
However, RHB cautioned that slower-than-expected job replenishment trends remain a key risk.
For the first quarter ended Oct 31, 2023 (1QFY2024), Gamuda reported a net profit of RM195.04 million on the back of a revenue of RM2.8 billion. The company disclosed an order book totalling RM26 billion and unbilled property sales amounting to RM6.7 billion.
At the time of writing, Gamuda saw its share price surge by 12 sen or 2.38% to a five-year high of RM5.17 with 3.07 million shares changing hands. Its market capitalisation stood at RM14.15 billion.