KUALA LUMPUR: Gamuda Bhd is making headway in the infrastructure segment Down Under as the construction firm, along with its partners, has been shortlisted for three mega project jobs in Australia.
Each package has a contract value of RM6.3bil-RM8.3bil.
According to UOB Kay Hian Research (UOBKH), Gamuda and its joint venture partner, John Holland, are among the three consortia shortlisted to undertake the tunnelling works for Sydney Metro West’s (SMW) Greater Western Sydney-Western Sydney International (Nancy-Bird Walton) Airport.
The contract is conservatively estimated to be worth around RM8bil.
This is the third project in Australia that Gamuda has been shortlisted for.
The work would involve constructing 11km of twin metro railway tunnels, including station boxes’ excavations.
The contract should be awarded by end-2021, with the first of four boring machines expected to be in the ground by mid-2023.
“Gamuda believes it stands a good chance of securing the project given its competitive cost, ” UOBKH said in its latest report.
The other two contracts in Australia that the company has also been shortlisted for are the SMW’s Central/Western Tunneling package (contract value estimate: RM8.3bil/RM6.8bil, outcome: end-2021/mid-2022), and the M6 highway project (contract value estimate: RM7.8bil, outcome: mid-2021).
“We believe securing its first contract in Australia will be crucial for Gamuda to pave the way into Australia’s construction scene.
“The track record will help strengthen the company’s future prospects for tenders, ” the research house said.
UOBKH also noted that the rollout of local infrastructure projects such as the MRT3 and the Penang Transportation Masterplan (PTMP) is another key catalyst for Gamuda.
“We understand that Gamuda’s 60%-owned SRS Consortium has complied with all conditions needed for the environment management plan (EMP) approval, and Gamuda is expecting formal approval once the movement control order is over.
“EMP is one of the main conditions imposed under the Environment Impact Assessment of the project. Once fulfilled, the Penang South Reclamation (PSR) of Island A project could begin, ” it said.
However, UOBKH added that details such as the source of funds and the project’s delivery structure are still unclear.
“The state government could opt for the project delivery partner (PDP) model, but this would require the state government to provide the initial fund, while another option would be to have a third party, like SRS Consortium, to fund the initial expenditure.
“Gamuda has also shown keen interest in becoming the PSR Island A contractor, where the SRS Consortium hopes that the PSR reclamation will be kicked off in mid-2021, ” it said.
Gamuda is poised to be a key beneficiary should there be further pump-priming activities by the government through the rollout of infrastructure projects, such as the Klang Valley Mass Rapid Transit (KVMRT) Line 3, which has an estimated project value of RM21bil.
However, the rollout of the projects will be highly dependent on the government fiscal’s position post-pandemic and the current political situation.
Given Gamuda’s potential to grow its orderbook, UOBKH opined that any weakness in the company’s share price is an opportunity to accumulate ahead of its tender submission for MRT3 as well as the award of potential Australia mega projects contracts from mid-year onwards.
The research house maintained its “hold” rating on the stock with a higher target price of RM3.70.
“Should Gamuda win both the SMW contracts, the target price could be increased to RM4, ” it added.
Nonetheless, it trimmed the company’s FY21 earnings by 5% to reflect the lower-than-expected earnings reported in Q1FY21.
UOBKH also adjusted its FY22-23 earnings forecast higher by 3%-6% on higher orderbook replenishment assumption of RM3bil, from RM2bil previously.
“We believe there is further upside to our earnings forecasts should Gamuda clinch sizeable contracts starting from FY21.”