“We gather that Gamuda is proposing to reduce the cost of the MRT3 by at least half from the previous estimate of RM45bil, while the PTMP is pending approval by the Federal Government authorities,” it said on Thursday.
Affin Hwang Capital Research raised its realised net asset value (RNAV)/share estimate by 7% to RM4.12 on a higher construction division valuation.
“We upgrade our call to Buy from Hold with a higher TP of RM3.70, based on a 10% discount to RNAV, as we expect Gamuda to benefit from these project revivals,” it said.
On the MRT3 project, it said Gamuda could want to reduce the project price by at least half of the previous RM45bil estimate to RM20bil to RM23bil.
“We gather that the government may revive the project by end-2019 and call for tenders to appoint a turnkey contractor in 2020. We believe Gamuda has competitive cost advantages to bid for MRT3 as it has 12 tunnel-boring machines (TBM) for MRT2 works that can be re-deployed for MRT3,” it said.
Affin Hwang Capital Research also pointed out the PTMP and Penang South Reclamation (PSR) were included in the Penang Structure Plan 2030 and approved by the National Physical Planning Council recently.
The final approvals required, such as the Department of Environment approval for the PSR project, are expected by mid-2019.
Tenders for the initial packages of the proposed Penang Light Rail Transit (LRT) and Pan Island Link 1 (PIL1) will likely be called by late 2020.
“Gamuda’s current order book of RM10.9bil could increase nearly three-fold if both the PTMP and MRT3 projects are secured,” it said.
However, uncertainties remain over the ongoing negotiations between Gamuda and the government to dispose of the former’s tolled highway stakes.
The research house revise the value of Gamuda’s tolled highway stakes to RM2.8bil from RM4.8bil previously to reflect the higher net debt and lower traffic volume projections.
“We believe Gamuda will receive a fair price for its tolled highway stakes based on our DCF valuation.
“After rolling forward the DCF valuation base year to FY20E and raising the valuation of its construction and property divisions, our RNAV/share estimate increases to RM4.12 from RM3.86 previously.
“Based on a lower RNAV discount of 10% (30% previously), we raise our TP to RM3.70 from RM2.70. We upgrade our call to BUY from Hold,” it said.
Did you find this article insightful?