KUALA LUMPUR: CIMB Equities Research is retaining its overweight recommendation for the construction sector and its add calls for Gamuda, MRCB and YTL Corp following the latest newsflow for the KL-Singapore High Speed Rail (HSR).
The research house said on Friday it maintained its earnings forecasts for Gamuda, MRCB and YTL Corp pending the finalisation of contract value as project delivery partners (PDP) for the HSR; PDP fees and the timing of actual construction.
“We retain our Add calls on the three stocks and our Overweight call on the sector; key sector risks are execution delays and competition from foreign contractors,” it said.
Other potential sector catalysts include the award of the RM9.4bil Gemas-JB rail double-tracking project to YTL Corp and a decision on the EPCC scope of the MRT 3 (Circle Line), which could benefit Gamuda.
On Thursday, MRCB-Gamuda JV (50:50) and YTL-THP JV (70:30) each received the letter of award (LOA) for their respective PDP scopes. The announcement formalises the letter of intent (LOI) received by both JVs early this month.
MRCB-Gamuda JV’s North Package Project covers the alignment from the Bandar Malaysia terminus station to the first standard viaduct pier on the south side of the Melaka Station.
YTL-THP JV’s South Package takes over from there and goes all the way down to the Malaysia-Singapore border.
“Neither the PDP fee nor the overall PDP contract value was disclosed. We therefore stick to our estimate for the combined value of the two PDP scopes of RM30bil to RM40bil.
“We assume that MRCB-Gamuda JVs undertakes a larger PDP contract value (despite a shorter rail length vs. YTL-THP JV’s portion) given possible underground and above ground works.
“From the proposed HSR rail line, we estimate that MRCB-Gamuda JV’s PDP coverage makes up less than half of the 350km HSR track length,” it said.
Assuming a 6% PDP fee and a straight line contract recognition, CIMB Research estimates RM97.5mil to RM130mil per annum in PDP profit each for Gamuda and MRCB over six years.
This could boost MRCB’s FY19F net profit by 51%-68% and Gamuda’s FY7/20F net profit by 7%-10%.
YTL’s share of PDP profit will range from RM73.5mil to RM98mil per annum, equivalent to 7%-9% of its FY6/20F net profit.
Assuming a lower prevailing PDP fee of 5%, Gamuda’s and MRCB’s PDP profit could amount to RM81.3mil to RM108.3mil per annum each.
For MRCB, this bumps up its FY19F net profit by 42-56% on a straight line basis while Gamuda’s FY7/20F net profit could be raised by 6-8%.
YTL will net a PDP profit of RM61.3mil to RM81.7mil per annum, boosting its FY6/20F net profit by 6%-8%. It appears that PDP companies can tender for civil works
“Our channel checks reveal that, compared to MRT PDP, there is a likelihood that HSR PDP companies may be able to participate in the actual construction works but we believe this could be limited to selected portions.
“Initial civil works awards to local contractors are likely to take place from early-2019 onwards,” said CIMB Research.
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