CGS Sees a Major Re-Rating Opportunity in Gamuda Bhd

Gamuda Bhd, one of Malaysia’s premier engineering and construction groups, has found itself in a paradoxical position over the past year. While the company has secured a series of high-profile contract wins, including major data center projects that have captured market imagination, its share price has lagged, closing at RM4.82 on Friday, down 13% from a year ago. However, research house CGS International believes this disconnect between performance and valuation presents a compelling buying opportunity. Reiterating its "ADD" call, CGS has raised its target price for Gamuda to RM6.05, citing a record order book of RM61.6 billion, improved earnings visibility, and a diversified exposure that shields the group from single-market volatility.

The cornerstone of CGS’ bullish thesis is Gamuda’s robust orderbook, which has already surpassed the company’s own end-2026 target of RM50 billion. As of September 2026, the orderbook stood at an impressive RM61.6 billion, with CGS estimating it could reach RM60 billion by year-end, supported by a visible pipeline of new contracts. Crucially, about 79% of this orderbook is still at an early execution stage, with between zero and 20% completion. This means that the bulk of the revenue and profit recognition is yet to come.

CGS believes this structure sets the stage for a pronounced earnings recovery as these projects move further along their construction curves. The research house identifies the first quarter of FY2027 as a potential inflection point, where the translation of orders into billable progress will begin to materially impact the bottom line. For investors who have been waiting for tangible results from the recent surge in contract awards, the next few quarters may finally deliver the evidence they need.

One of the key concerns among investors has been the relatively muted recovery in construction margins, despite the volume of new orders. Skeptics worry that aggressive bidding or rising input costs could compress profitability. However, CGS argues that this concern is overstated, pointing to Gamuda’s historical resilience and engineering prowess.

The research house cites Gamuda’s performance following the downsizing of the MRT2 project in 2018 as a case study. Despite a significant reduction in project scope and challenging operating conditions, the group managed to achieve construction pre-tax margins of 12% to 17% in FY2021 and FY2022. This track record suggests that Gamuda possesses the operational discipline to preserve margins even in difficult environments. Furthermore, CGS sees upside from the group’s newer data center projects, which typically carry healthier margins than traditional civil works. Consequently, CGS has lifted its FY2027-FY2028 earnings per share forecasts by 2% to 6% to account for these stronger expected margins.

Another headwind for Gamuda has been its net gearing, which stood at approximately 0.7 times as of April 2026. In a high-interest-rate environment, elevated debt levels can spook investors. However, CGS views this largely as a timing issue rather than a structural weakness. The increase in gearing was primarily driven by the acquisition of four parcels of land in Vietnam during the first quarter of 2026, intended for quick-turnaround property projects.

These acquisitions are expected to underpin Gamuda’s ambitious FY2027 presales target of RM7 billion, representing a 75% year-on-year growth, backed by a RM10 billion launch pipeline. Given the fast sales cycle of these developments, the debt incurred is expected to be recycled quickly. Moreover, CGS notes that Gamuda’s interest coverage remains comfortable, estimated at 7.6 to 9 times for FY2026-FY2027, indicating that the company has ample capacity to service its debt obligations without strain.

While much of the recent market hype has focused on pure-play data center beneficiaries, CGS highlights that data centers account for only about 15% of Gamuda’s total order book. Rather than viewing this as a lack of focus, CGS sees Gamuda’s diversification across markets and infrastructure segments as a significant competitive advantage. The group has major operations in Malaysia, Taiwan, Singapore, and Australia, with exposure to mass rapid transit, rail, renewable energy, water infrastructure, and other large-scale projects.

This geographic and sectoral diversity provides Gamuda with stronger three- to four-year earnings visibility and reduces its reliance on any single country or infrastructure sub-sector. If one market slows down, another can pick up the slack. This balance is particularly evident in its property business. About 46% of Gamuda’s FY2027 property launches are expected to come from Vietnam, 29% from Singapore, and 25% from Malaysia. This mix helps offset slower township sales in Malaysia, leveraging the strong demand for quick-turnaround developments in Vietnam. A prime example is Persa Place, the first high-rise component of Gamuda’s Springville development in Vietnam, which was fully sold within just two hours of its launch in May 2026, demonstrating the potency of its regional strategy.

CGS also disputes concerns that Gamuda is over-owned by institutional investors. Foreign shareholding stood at 23.6% in August 2026, its lowest level since January 2024. This suggests there is significant room for additional foreign participation if quarterly earnings strengthen and the narrative shifts from "promise" to "delivery." The research house believes that consistent earnings delivery could become an important catalyst for a share price re-rating, bringing Gamuda’s valuation more in line with its regional peers.

Potential re-rating catalysts include additional construction wins, stronger-than-expected property sales, and easing raw material costs. Conversely, downside risks include delays in contract awards and higher construction material prices, which could pressure margins in the short term.

In summary, Gamuda Bhd stands at a crossroads. With a record order book, a proven ability to manage margins, and a diversified footprint that mitigates risk, the company is well-positioned for sustained growth. CGS’ upgraded target price of RM6.05 reflects confidence that the market will eventually recognize this value. For investors willing to look beyond the recent price weakness, Gamuda offers a rare combination of stability, growth, and optionality in an uncertain economic landscape. The sleeping giant may be ready to wake up.