AmWatch - Gamuda : Third wish granted?, 14 August 2015

STOCK FOCUS OF THE DAY

Gamuda : Third wish granted?   Buy

                    

We maintain BUY on Gamuda with an unchanged fair value of RM5.80/share (10% discount to NAV/share). Gamuda’s share price has been suspended today pending a material announcement. While no further details were given, The Star reported that Gamuda has been appointed as the Project Delivery Partner (PDP) to oversee certain components of the Penang Transport Master Plan (PTMP). The Star said this followed the group’s receipt of a letter of award from the Penang government following a state executive councilor meeting.

The Star report added that Gamuda has formed a consortium with two other local entities to implement the PTMP project. This will include a RM5.3bil LRT project, as well as a RM4.5bil 20km pan-island linked expressway linking Bayan Lepas and Tg. Bungoh. Other schemes within the first phase include a RM100mil train and catamaran system and a RM100mil highway interchange. Following this, Gamuda is reportedly in the process of appointing local contractors to undertake soil and alignment studies for the LRT project. However, it will still need to obtain an LRT licence from the Federal Government that may take between nine months to a year.

This latest development, if followed through, vindicates our conviction that Gamuda is set to benefit from three event catalysts in 3Q2015. Just last month, the group (via the MMC-Gamuda JV) had signed the PDP agreement for the Klang Valley MRT 2. The signing of a landmark water pact between the Federal and Selangor governments after that, we believe, will likely trigger renewed hopes for Gamuda to realise its water investments in SPLASH. We retain our earnings estimates for now pending more details. Assuming Gamuda has a 50% stake in the PDP consortium with a contract value of c.RM9bil, its NAV will rise by ~RM0.83/share. If it secures an additional 50% stake each in the PDP contract/tunneling works for MRT2, Gamuda’s NAV is set to rise by RM1.26/share or 19% (fair value up by 19% from RM5.80/share to RM6.95/share).

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