MRT keeps Gamuda busy

MRT keeps Gamuda busy
Business & Markets 2013
Written by Maybank IB Research
Wednesday, 15 May 2013 10:29


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GAMUDA BHD []
(May 14, RM4.70)
Maintain buy at RM4.73 with a revised target price of RM5.30 (from RM4.80): Progress on the Klang Valley mass rapid transit (KVMRT) 2 has strengthened our upbeat view of Gamuda, which stands to be the main beneficiary of the entire KVMRT project.

MMC-Gamuda KVMRT (PDP) Sdn Bhd, a 50:50 joint venture company between Gamuda and MMC Corp Bhd has been appointed by the federal government as the project delivery partner (PDP) for the mega KVMRT project.

We also see potential upside to our forecasts for Gamuda’s earnings for its 2014 financial year ending July (FY14) due to better progress and margins for KVMRT 1.

Thus, we reiterate our “buy” call and upgrade our target price to RM5.30 (+10%) based on 16.5 times 2014 earnings (from 15 times), slightly above its long-term mean of 16 times.

We however maintain our FY14 net profit forecast for now, which is about 10% below management’s guidance of RM700 million.

Civil works for KVMRT 2, expected to commence in mid-2015, will replenish Gamuda’s order book post the completion of KVMRT 1. Gamuda believes its MMC-Gamuda JV would bag the tunnelling works (worth about RM8 billion) and PDP role (worth about RM1 billion) for KVMRT 2, given its project management experience and CONSTRUCTION [] expertise.

In addition, comments on MMC-Gamuda’s performance as a PDP have been positive so far.

Gamuda is also bidding for the high-speed Kuala Lumpur-Singapore rail (HSR) project with a strong foreign partner, whose identity will be announced soon. If approved, the project will boost its order book in 2015.

Gamuda plans to spend RM1 billion per year for the next three years to replenish its landbank, mainly in a few major cities in Malaysia. Post the slowdown in the property sector, land prices are generally perceived to be more reasonable. Hence Gamuda believes that it is a strategic time to seize undervalued land.

The RM3 billion capital expenditure will be funded through internal funds or debt if required. Unless the cost of the landbank expansion exceeds RM3 billion, Gamuda will not need to utilise proceeds from asset disposals.



The disposal of its tolled roads and water assets is still a work in progress. Management believes that since the general election is now over, progress on the disposals could pick up in a few months.

Nevertheless, Gamuda is in no hurry to sell its tolled roads since it is receiving timely cash compensation. It has, however, agreed in principle to the sale of its water assets. We believe proceeds from these disposals could be paid out as special dividends. — Maybank IB Research, May 14


This article first appeared in The Edge Financial Daily, on May 15, 2013.[You must be registered and logged in to see this image.]