Gamuda downgraded despite RM54bil order book boost

Gamuda, a Malaysian construction and property group, has been downgraded to a "hold" rating by investment bank AmInvest, despite boasting a RM54 billion order book. The downgrade comes amid concerns over profit margin pressure, balance sheet risk, and financial headroom. AmInvest attributes this to persistent negative free cash flow, a net gearing of 73%, and the cash-intensive nature of Gamuda's recent expansion.

Despite delivering a 39.4% revenue compound annual growth rate over the past three years, the company has incurred a cumulative negative free cash flow of RM5.4 billion in FY2023-FY2025. Gamuda's operations span multiple countries, with Malaysia and Australia accounting for 76% of its construction backlog. The bank believes that while the order book provides strong earnings visibility, it is increasingly capped by margin pressure, weaker cash generation, and higher leverage.