Cabinet accepts MMC-Gamuda offer

  • Business
  • Saturday, 27 Oct 2018

Works get nod: A file picture showing MMC-Gamuda tunnelling crew from its Tunnelling Training Academy at work. MMC-Gamuda made an offer to reduce the cost of MRT2 underground works by RM3.6bil, or 21.5, to RM13.11bil. The offer has been accepted.

PETALING JAYA: Shares of Gamuda Bhd and MMC Corp Bhd jumped after the Finance Ministry gave the green light on the continuation of underground works for the Mass Rapid Transit Sungai Buloh-Serdang-Putrajaya Line (MRT2) project at a reduced cost.

Gamuda’s shares rose 15 sen, or 6.47%, to close at RM2.47, while shares of MMC Corp Bhd gained four sen, or 3.57%, to end at RM1.16 yesterday.

Finance Minister Lim Guan Eng said in a statement that the Cabinet has accepted an offer by MMC-Gamuda to reduce the cost of MRT2 underground works by RM3.6bil, or 21.5%, to RM13.11bil.

Earlier the joint venture had offered a cost reduction of only RM2.13bil, or 12.7%, for the MRT2 underground works.

“This means that the construction cost (excluding interest during construction, land acquisition costs and other costs) of MRT2 has been successfully reduced by RM8.82bil, or 22.4%, from RM39.35bil to RM30.53bil,” Lim said.

As such, the Government has effectively rescinded its previous decision to terminate MMC-Gamuda as contractor for the job.

MMC-Gamuda had previously agreed to cut the cost of the above-ground works by RM5.22bil, which was accepted by the Finance Ministry.

However, its offer to reduce underground works cost by only RM2.13bil was rejected by the MoF and the decision was made for the contract to be terminated and be re-tendered.

Commenting on the latest development, AmBank Research said it was positive by virtue of MMC-Gamuda having “made amends” with the government.

However, the brokerage pointed out that the cost reduction would mean MMC-Gamuda would have to carry out the 60% remaining work with an original contract value of RM9.6bil at RM6bil, representing a whopping 37.5% cut effectively.

“While the reduction includes the cancellation of two underground stations, that is, Bandar Malaysia (North) and Bandar Malaysia (South), we doubt if MMC-Gamuda will be able to turn in any meaningful profits from the remaining work at this price,” AmBank Research explained in its report yesterday.

“As such, we are keeping our forecasts that have removed profits from the remaining MRT2 underground work,” it said.

AmBank Research maintained its “hold” call on Gamuda, with a fair value of RM2.71 for the counter based on 12 times the estimated earnings of 2019.

“While the rollout of public infrastructure projects will resume over the medium term as infrastructure development remains key to nation-building, we believe the focus will shift to smaller scale/value-for-money basic infrastructure projects such as road upgrading, bridges, schools, drainage, rural water and electricity supply and smallish sewerage schemes, from multi-billion mega projects,” AmBank Research said.

“The smaller projects are less economical to large-contractors such as Gamuda, given their high fixed overheads.

“Not helping either, is the uncertainty arising from the potential expropriation of Gamuda’s toll roads,” it added.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3

Business , Gamuda , MMC , MRT2 , construction


Did you find this article insightful?


Next In Business News

MCO 2.0 to cost Malaysia RM600m daily, Zafrul says
Two Menang Corp shareholders seek removal of four directors
Federal Court rules in favour of house buyers over late delivery
Beshom to take over listing status of Hai-O Enterprise
Karyon reports 4 workers tested positive for Covid-19
KLCI reverses gains, falls 7.64 points
Dollar drops as traders prepare for Yellen to talk up stimulus
Norway awards O&G exploration rights to 30 firms
China's Geely teams up with Tencent on smart car tech
Japan's biggest business lobby shrugs off calls for wage hikes

Stories You'll Enjoy