KUALA LUMPUR (March 29): Gamuda Bhd emerged among the top losers on Friday morning, falling as much as 21 sen or 3.98% to RM5.06, after some analysts trimmed the construction group’s earnings forecasts despite its results for the second quarter ended Jan 31, 2024 (2QFY2024) largely meeting expectations.

At 10.54am, the counter pared some losses to RM5.17, still down 10 sen or 1.9%. It saw 6.13 million shares traded.

RHB Investment Bank Bhd (RHB IB) said it had cut Gamuda’s earnings forecasts by 4% to 5% for the financial year 2024 (FY2024) until FY2026, as well as lowered its target price (TP) to RM6.30 from RM6.46 previously.

Hong Leong Investment Bank Bhd (HLIB) also cut Gamuda’s earnings forecasts by 3.1% for FY2024 and 0.8% for FY2025, but raised its FY2026 forecast by 3.6% after adjusting for award delays. The research house maintained its TP for the group at RM5.93.

However, most analysts, including RHB IB and HLIB, still maintained their “buy” recommendation on Gamuda. The group’s earnings are expected to pick up in the coming quarters on the back of a record order book of RM26.1 billion and multiple jobs, both domestic and overseas, are in the pipeline.

“The negative deviation was from our initial [construction] billing estimates being too optimistic,” RHB IB said in a note on Friday.

“Notwithstanding this, Gamuda is still set to post another record-high profit for FY2024, based on our estimates,” it said.

Moving forward, RHB IB expects Gamuda’s construction margins to rise sequentially as local projects with higher margins ramp up, such as the Silicon Island reclamation job, which will include two new bigger dredgers and the Sungai Rasau Water project.

Meanwhile, HLIB said Gamuda’s earnings are likely to rise in the next quarters, driven by the increase in domestic construction and lumpy property recognition.

“There continue to be multiple jobs in the pipeline, with AU (Australia) shortlisted projects growing. Domestically, prospects on Penang LRT remain encouraging, while the data centre pipeline provides robust visibility stretching five to eight years,” it said.

Kenanga Investment Bank Bhd, which has raised its TP for Gamuda to RM6.20 from RM5.45 previously, said it continues to like the stock for being the front-runner for the Bayan Lepas LRT and the tunnelling job for the MRT3.

Apart from that, Gamuda has the ability to secure new jobs in overseas markets, a strong war chest after disposing of its toll highways, strong earnings visibility underpinned by its record outstanding order book as well as its inroads into the renewable energy space.

“Risks to our call include the delays in the roll-out of key public infrastructure projects in Malaysia such as the MRT3, rising input costs and labour shortage, risks associated with operations in overseas markets such as the change in government policies towards foreign businesses and forex, and liquidated ascertained damages (LAD) from cost overrun and delays," it noted.

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