Gamuda Bhd
(Sept 8, RM3.05)
Maintain outperform at 3.04 with revised fair value of RM3.79 (from RM3.70): The recent correction in Gamuda’s share price may be partially attributable to the market pricing in an increased risk of MMC-Gamuda not winning the MRT tunnelling package, with the “mighty” Chinese contractors coming into the picture.
The MMC-Gamuda JV may not be worse off walking away from the MRT tunnelling package if the Chinese contractors decide to drive the margins down to close to zero for tactical reasons. If MMC-Gamuda is not the contractor for the tunnelling package, instead of being the project delivery partner (PDP) for only the elevated portion, MMC-Gamuda JV can now become the PDP for the entire project including the tunnelling portion.
MMC-Gamuda JV may still come in via a backdoor if it is to replace the tunnelling contractor on dismissal on nonperformance grounds. The only issue is it will have to find a way or someone to complete the jobs at the same price.
The tunnelling package that is going to be up for bidding is only for Line 1, that is the Sungai Buloh-Kajang (SBK) Line. There will be two more tunnelling packages, one each for Lines 2 and 3 with an estimated combined value of RM12 billion.
We maintain our forecasts. Risks include: (i) the MRT project being delayed/scrapped; (ii) Gamuda getting a smaller role in the MRT project; and (iii) rising input costs.
We have turned positive on the construction sector as there is now even more urgency for the government to expedite the rollout of various public projects to pump prime the economy and shield it against the increased risk of the global economy slipping into a double dip recession. We believe the selldown on Gamuda is overdone as we feel that, as it stands today, it is untrue that the risks of the MRT project being delayed/scrapped or Gamuda getting a smaller role in the project, have risen significantly.
Indicative fair value for Gamuda is raised by 2% from RM3.70 to RM3.79 based on sum of parts, having raised our assumption on the total contract value (today’s price) for the tunnelling packages for Lines 1, 2 and 3 of the MRT project to RM19.5 billion from RM13 billion previously. — RHB Research, Sept 8
Written by Financial Daily
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