AmWatch - Construction Sector : Down to two in Penang? (PDP) OVERWEIGHT, 22 Jun 2015

SECTOR FOCUS OF THE DAY

Construction Sector : Down to two in Penang? (PDP)      OVERWEIGHT

The Edge Malaysia reported that the race for the Project Delivery Partner (PDP) contract for the Penang Transport Master Plan (PTMP) is now down to two. The two are Gamuda and a Chinese entity linked to the Export-Import Bank of China (China Exim Bank). We understand that Request for Proposals (RFP) for the highly-coveted role was initiated last August, but had closed only about three months ago. Earlier reports indicated that six bidders had submitted bids for the PTMP – Gamuda, IJM Corp, WCT, Prasarana Malaysia, Singapore-based CGC Group, and two Hong Kong investors represented by independent strategic adviser Datuk Dr. Nik Zamri Majid. The report also added that three Chinese outfits – China Railway Construction Corp, China Harbour Engineering Co LTd, and Sino Hydro Corp Lyd – had acquired the RFP documents from the Penang government.  Based on our earlier checks, the award for the PDP was supposed to have been finalised by the end of this month.  

The construction of a 17.5km LRT line linking Komtar to the Penang International Airport and a link from Bayan Lepas to Tg.Bungah are among key components of the RM27bil PTMP, we gather. The contract for the PTMP is supposed to be worth ~RM5.5bil. Also, other news reports revealed that the winning bidder could be in a position to reclaim ~1,500 acres of prime sea-fronting land located between the Penang Bridge and Sg. Pinang (i.e. Penang Middlebank).

While the exact payment structure is not immediately known at this juncture, we believe a robust property market in Penang is vital to make the PTMP attractive from a project standpoint, given that a fair chunk of the consideration would likely involve land as payment-in-kind. That being the case, the latest development reaffirms our view that Gamuda would emerge as a frontrunner for project given its prior track record and niche strength in tunnelling works. Based on our preliminary estimates, the PDP contract could lift Gamuda’s NAV by RM0.83/share (+14%), assuming it successfully secures a 50% stake in the project.

Others :

Economic Update : Inflation creeps up to 2.1% in May (CPI)

Economic Update : Fed officials expect interest rate to rise albeit at a slower pace in 2016 (Outlook).

QUICK TAKES

Plantation Sector : Newsflow for week 15 to 19 June       OVERWEIGHT

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NEWS HIGHLIGHTS

Construction Sector : Three outfits said to be on shortlist for LRT3 PDP

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