UOB Kay Hian Research retains Hold for Gamuda, TP RM3.65


  • Analyst Reports
  • Monday, 14 Oct 2019

Penang South Reclamation (PSR) project

KUALA LUMPUR: UOB Kay Hian Malaysia Research is retaining its Hold call for GAMUDA BHD and a target price of RM3.65 after its foray into Australia and the government's go-ahead to take over its tolled roads.

The research house said on Monday its target price was based on sum-of-parts valuation, and implies 20.3 times FY20F price-to-earnings (PE).

“Gamuda is trading at an implied 14.8 times FY20F PE (excluding disposal proceeds of RM2.36bil). There is further upside to our new target price which has not incorporated the real option value of Gamuda taking on new mega projects like the Penang Transport Masterplan (PTMP) and Australian projects, as well as the possible re-activation of MRT3.

UOB Kay Hian Research said based on its estimates, Gamuda’s target price can be enhanced by incorporating the option value of the following: a) by 26 sen a share from PTMP Public-Private Partnership fees, b) by 10 sen a share from new job wins from PTMP, and c) by five sen a share based on 50% stake in Martinus (based on a conservative margin assumptions).

To recap, Gamuda recently bought a 50% stake in Martinus Rail, where Martinus wishes to tender for rail infrastructure projects (up to A$8bil) for infrastructure development.

The stake in Martinus Rail, the largest privately-owned tier-two specialist contractor (track work related), is expected to bring opportunities for Gamuda and its partner to collectively tender for rail projects (identified by Martinus) worth up to A$8bil in the next one-to-two years.

Separately, Martinus believes the partnership with Gamuda will enable them to tender for larger scale rail projects given Gamuda’s unmatched track record vs Aussie incumbents, with Gamuda having undertaken two mega rail projects with more than A$10bil each.

Gamuda is also in negotiations to form a JV or to collectively work with Australia’s tier-one contractors to bid for other rail infrastructure projects.

Also last Friday, the government announced the Cabinet has approved the takeover of Gamuda’s tolled highways and an official announcement will be made soon.

Separately, the part of proceeds from the disposal of its tolled highways will be channelled as initial funding and will be used to kick-start the ambitious PTMP.

Meanwhile, the PDP for PTMP, SRS Consortium, has received a validity extension as the PDP to Feb 29,2020 by the state government.

Recall that the SRS Consortium, which consists Gamuda, Ideal Property Development and Loh Phoy Yen Holdings (60:20:20), was appointed as the PDP for PTMP project in 2014.

The PTMP entails the construction of LRT, Penang Island Link and Penang South Reclamation (Island A, B & C).

The RM46bil project has received Environmental Impact Assessment (EIA) approval from the Department of Environment (DOE) for Pan Island Link (PIL1) and Penang South Reclamation project, while EIA for LRT is pending approval.

The construction of Island A is considered as a Public-Private Partnership initiative where the Island A reclamation is independent of the construction of LRT and PIL1.

“The recent Budget 2020 announcement has reaffirmed our view that MOF’s takeover of Gamuda’s tolled highways will go through. We expect the government to make the official announcement to the toll stakeholders in due course, while

the previous definitive contract terms remain unchanged, including the acquisition value of RM2.36b (equity value) and change of ownership (from Gamuda to government) by the end of 2019, ” it said.

UOB Kay Hian Research said while acknowledging the sluggish domestic property market outlook, Gamuda remains upbeat on delivering stronger property sales in FY20 with a target of RM4bil driven by its Vietnam projects.

In Malaysia, the company plans to focus on its existing townships like Gamuda Cove, Gamuda Gardens and TwentyFive.7.

The expected launch of Anchorvale Crescent in Singapore is expected to boost its property sales in FY20. FY19 unbilled sales stood at RM2bil, representing one time 2019 property cover.

Aside from receiving the green light for the takeover of the tolled highways, the Budget 2020 has allocated RM1b 1:5 matching guarantee for private equity funds for Malaysian consortiums which bid for overseas projects and concessions; this may potentially benefit Gamuda in its plan to explore the overseas market.

Due to the shrinking pool of infrastructure-related projects in the country, the company is shifting its focus to tender for building jobs domestically and planning to venture into overseas markets including Australia (via its 50% stake acquisition in Martinus Rail), Singapore, Vietnam and Taiwan for infrastructure-related works.

At present, the company’s orderbook stands at RM10.5bil (inclusive of the turnkey contract for AG MRT2). Recall that post revision of MRT2, Gamuda with its partner MMC Corp became the turnkey contractor with the contract value reduced to RM30bil (from RM39bil) while assuming an average PBT margin of 8% (down by two percentage points).


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