CIMB Research: MMC-Gamuda JV may land bigger MRT2 package

Analyst Report

Gamuda Bhd

By CIMB Research

Add (maintained)

Target price: RM5.55

CIMB Research said MMC-Gamuda JV could be in the running to clinch an even larger underground package from MRT 2, worth up to RM15bil (original value: RM10bil-RM12bil) given the official revised scope (up 40%).

It would not discount the likelihood that MRT awards could be dished out from as early as end-March, which include the first two viaduct packages.

The research house said the Government could accelerate the award phase of MRT2 and that at least three bids for major civil works package were close to being finalised, including the international Swiss Challenge for MRT2’s underground scope.

CIMB said its channel checks also confirmed a recent article suggesting that the total cost of MRT 2 had risen to around RM30bil compared with RM28bil as per the 11th Malaysia Plan.

The revival of the MRT story in the short term strengthens Gamuda’s tender prospects, which comprises several other sizeable jobs too.

CIMB calculated an estimated tender book of RM9bil comprising MRT 2, Pan Borneo Highway, LRT 3 and Gemas-JB double track projects. This exceeds the research house’s RM5bil assumed wins for FY16.

Securing an RM7.5bil MRT package would raise FY17-18 forecast earnings per share (EPS) by 2-3% and target price by less than 2%. A best-case RM9bil win would bump up its EPS by 6-7% and target price by up to 5%.

The potential revival of construction plays in months ahead and investors’ preference for big cap infra laggards could trigger a recovery in Gamuda’s foreign shareholding, which stands at a low of 21% in comparison to 45-50% when the group secured its first MRT underground package in 2012.

The stock trades at a 9% discount to its 2015 high of RM5.13, which is unjustified given the improved visibility of its job replenishment prospects.

It added that the current levels presented a good opportunity to accumulate Gamuda shares.

CIMB said Gamuda remained a top pick among the big caps given its biggest exposure to MRT 2 and the largest proxy to rail jobs. It said 2016 was likely to be an eventful year, bringing its order to a new all-time high of at least RM8bil. The RM10bil Penang Transport Master Plan (TMP) should drive its longer-term prospects.

BERJAYA AUTO BHD

By Maybank Investment Bank Research

Buy (maintained)

Target price RM2.19

MAYBANK IB Research said Berjaya Auto’s (BAuto) third quarter ended Jan 31, 2016 earnings fell short, similar with its peers, on the back of deferred purchases by dealers and unfavourable forex.

The research house cut FY16-18 earnings forecasts by 10%-25% on lower volume sales and unfavourable yen to ringgit foreign exchange.

Rolling forward its valuations to 2017 calender year, Maybank’s revised target price is RM2.40 (-16%), pegged on new 11.5 times price-to-earnings ratio (+1SD) versus 12.5 times.

It maintained it “buy” call on BAuto and that yields remained decent at about 4%.

It said BAuto was hit with a triple-whammy in the third quarter. It said BAuto’s vehicle sales contracted 3% quarter-on-quarter as dealers deferred purchases from BAuto (distributor) in order to clear stocks during year-end.

BAuto also experienced unfavourable sales mix in the Malaysia operations; complete knock-down (CKD) to complete build-up (CBU ratio reversed to 48:52 in third quarter (55:45 in second quarter FY16).

BAuto purchases its CKD cars in ringgit (not subject to forex) unlike CBU cars. The sales mix resulted in higher costs amid a weaker ringgit. BAuto’s effective 100 yen to ringgit forex went up to 3.30 from 3.18 in second quarter FY16 as its forward hedging ended in December 2015.