RHB Research says it likes Gamuda for its exposure to the Mass Rapid Transit and Penang transport infrastructure.
KUALA LUMPUR: CIMB Equities Research is maintaining its Add call for Gamuda Bhd
and a target price of RM6.15, which is an upside of 29% from the last traded price of RM4.75.
It said on Moday Gamuda’s share price is down 2% year-to-date and 11% in the last three months due to the negative perception that it could lose its project delivery partner (PDP) and tunnelling advantages to foreign funded contractors in the new rail contracts.
CIMB Research said last Friday Gamuda confirmed that it would not vie for the lead role in the upcoming Mass Rapid Transit’s Circle Line (MRT 3) project, as the government opted for the design, finance, and build model.
The turnkey contractor role is likely to be a race between Japanese and Chinese companies, which have self-financing capabilities.
“The group is however not too perturbed by the lack of PDP scope in MRT 3’s construction. Had it employed the PDP model, there would be only roughly 20% of the alignment that would fall under the purview of the PDP – who will be responsible for the above-ground portions.
“About 80% of the alignment of MRT 3 will be underground,” it added.
CIMB Research said using RM1bil a km as a guide, and an assumed 40km length, the value of the underground portion alone works out to a whopping RM32bil, making it the largest urban underground rail project in the Klang Valley by size and value.
The second good news was between 40% and 50% of MRT 3’s upcoming construction would require “local components”, or participation.
“This is also a positive surprise, compared to the earlier perceived 30% project share for local players. In our view, this ratio leaves high chances for local players to be subcontracted for some of the underground works,” it said.
On the 12 tunnel-boring machines (TBM) now used for MRT 2 have a combined capacity equivalent of RM15bil worth of underground works.
Once the project is completed in 2019, those TBMs can be re-deployed for MRT 3 almost immediately.
However, CIMB Research said one big question left unanswered was MMC Corp’s returns as Gamuda’s 50:50 joint-venture (JV) partner for MRT 3. The 12 TBMs and all patents are registered under the MMC-Gamuda JV.
On the KL-Singapore High-Speed Rail (HSR), Gamuda said its JV partner for the Malaysian side of the project’s PDP tender, Malaysian Resources Corp, comes with several “strategic advantages”.
According to the group, MRCB i) has a strong major and common shareholder in Employees Provident Fund (EPF); ii) is a government-linked company (GLC); iii) is a Bumiputera-status contractor; and iv) has a strong track record in transport-oriented developments (TOD).
Plus, it is the only local player (with all the above criteria) left with PDP experience.
The research house was surprised by the revelation that bidders of HSR’s PDP scope can propose the percentage of the construction cost as its fee – unlike the 6% fixed fee for the previous PDP-oriented rail projects.
Moreover, the fee’s quantum is put up as a criterion for the bid. While this gives rise to the possibility of other bidders proposing fees lower than 6% of the cost, Gamuda noted that HSR bears higher construction risks than, say, MRT, thus, it could justify a higher PDP fee. Order replenishment target revised to RM6bil to RM8bil per annum.
The group reiterated group managing director Datuk Lin Yun Ling’s statement as quoted by the media recently that Gamuda’s order book replenishment target was RM6bil to RM8bil per annum.
“This is lower than the RM10bil guided to analysts previously, but not a grave concern, in our view, as it is likely due to the revised tender structure and timing of the awards of MRT 3, the ECRL and the HSR, in our view,” it said.
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