AmWatch - Gamuda : Signs MRT Line 2 PDP agreement BUY, 14 Jul 2015

STOCK FOCUS OF THE DAY

Gamuda : Signs MRT Line 2 PDP agreement         BUY

We maintain BUY on Gamuda with an unchanged fair value of RM5.80/share (10% discount to NAV/share). Gamuda announced that its joint entity, MMC Gamuda KVMRT Sdn Bhd has signed the project delivery partner (PDP) agreement with MRT Corp for the Sg. Buloh-Serdang-Putrajaya (SSP) or MRT Line 2. The MMC-Gamuda JV will be responsible for the delivery of MRT Line 2 within the agreed targeted cost and delivery date.

We understand that four new key performance indicators (KPIs) have been included in addition to the two for Sg. Buloh-Klang (SBK) or MRT Line 1. The additional KPI requirements are for:- (i) safety, health & environment; (ii) compliance with agreed quality standards; (iii) timely response to public complaints; and (iv) implementation of stakeholder management.

The targeted completion date for Phase 1 of the MRT Line 2 is 31 July 2021, and 31 July 2022 for the second phase. We expect construction works to commence by mid-2016, following the expected rollout of major work packages (e.g. tunnelling) by 2Q16. The award of the PDP contract puts the MMC-Gamuda JV in the driver’s seat for the tunnelling package (~RM12bil) of MRT Line 2. While the finer details are not disclosed in the announcement, local news reports indicate that the MMC-Gamuda JV is set to receive a PDP fee of 6% under the MRT Line 2, which is similar to that for MRT Line 1. 

Pending more details, we maintain our earnings forecast for now. Assuming a 6% fee and that construction works will begin in 2H16, we estimate a RM0.19/share or 3% lift to Gamuda’s NAV (FY17F net profit: +6%). If Gamuda successfully clinches a 50% stake each in the tunnelling contract and PDP works for the PMTP, its NAV will rise further to RM7.72/share (+RM1.26/share).

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