Gamuda remains top large-cap pick in construction sector, says Affin Hwang

KUALA LUMPUR: Affin Hwang Capital Research said Gamuda Bhd is its top large-cap buy in the construction sector with a real net asset value-based target price of RM5.86.

It said the civil works for the RM45bil MRT3 project is likely to be shares between the Gamuda-George Kent-MMC Corp (GGM) consortium and China Communications Construction Co. 

"Assuming GGM wins 50% of the contract value and Gamuda’s share is 40-50% in the consortium, the MRT3 project could lift Gamuda’s order book by RM9.0-11.3bn. 

"This is above management’s 2018 new contracts target of RM6-8bn and still within our earnings forecast assumption of RM15bn of new contracts in FY18-19E, and would lift its current construction order book from RM14.1bn (RM7.3bn civil works and RM6.8bn PDP works)."

The research firm added that the project delivery partner contract for the HSR infrastructure works in Malaysia could be split into the Johor and non-Johor portion to linking to KL. 

"The Johor portion could go to the YTL Corp-SIPP joint venture (JV) while the non-Johor portion will likely see stiff competition between 2 local consortiums, ie, the IJM Corp-Sunway Construction-Jalinan Rejang Maltimur Resources JV and the Gamuda-MRCB JV," it said.

WIth an estimated project value of RM35-40bil, assuming the Gamuda-MRCB joint venture wins 50% of the contract and Gamuda's share of the work is 50%, the HSR project would lift its order book by RM8.8-10bil.

"Gamuda remains our top pick among the large-cap construction stocks as we see it as a proxy for the massive infrastructure spending plan in Malaysia," said Affin Hwang Research.
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