GAMUDA (FV RM4.58 - BUY) Corporate News Flash: RM8.2bn KV MRT Job Firmed up

THE BUZZ

The MalaysianInsider reported that MRT  Corp has  officially  confirmed that  the  MMCGamuda joint venture has won the tunneling job for the Klang Valley My Rapid Transit (KV MRT) Sungai Buloh-Kajang (SBK) line  with its bid  at RM8.2bn. The decision was made at a One Stop Procurement Committee meeting chaired by Prime Minister Datuk Seri Mohd Najib Razak in Parliament yesterday.

OUR TAKE

Surprise, surprise, surprise. Although  neither  MMC  nor  Gamuda have  made  any announcement  on Bursa  Malaysia in relation to  the said contract, we believe  MRT Corp’s statement is likely to be genuine as the online report quoted a statement from the corporation. We deem the announcement within our expectations, with Gamuda’s portion working out to be RM4.1bn given its effective 50% stake in the JV with MMC. We are not surprised that the JV has emerged as the ultimate winner given its expertise and experience  with  the Stormwater Management and Road Tunnel (SMART) project, as well as the Swiss Challenge condition favouring local contractors over foreign parties.

Details on the package. The quantum of the said job  is  at the higher end of our previous  estimate for  RM7bn-RM8bn.  From our recent conversation with Gamuda’s management, the 9.5km underground tunnel  comprises 7 underground stations linking  Semantan to Maluri. Works are expected to start as early as 2Q12 and  the  target completion date has been set for June 2017. We also understand that the underground package will be directly supervised by MRT Corp, as opposed to the elevated portion, with MMC-Gamuda JV being the official overseer as it had earlier been appointed Project Delivery Partner. 

BUY. While we deem the announcement within our expectations, we believe that it more importantly implies that the implementation of the much  awaited KV MRT project is on schedule. With that, we expect the remaining 6 out of the 8 packages on the elevated portion to be dished out progressively over the next 2 months.  This jives  in  with our bullish view on the construction sector as a whole as we believe that trading sentiment will  improve on  the  burgeoning news flow.  On Gamuda per se, we  are  revisiting  our model and tweaking  its share of the tunneling works from RM3.75bn previously to RM4.10bn, in line with the news report. Consequently, our SOP-based FV is bumped up to RM4.58 (from RM4.57 previously). Maintain BUY.

Source: OSK188