Gamuda - Move VOs for Ipoh-Padang Besar line? HOLD

- We maintain our HOLD rating on Gamuda with an unchanged fair value of RM3.79/share, pegged to a 5% discount to its sum-of-parts (SOP) value. Business Times reported that the MMC-Gamuda JV could be seeking to submit a RM1.5bil claim for variation orders from the government for the Ipoh-Padang Besar Electrified Double Tracking project.

- Business Times said that the MMC-Gamuda JV may also request for a further extension of time (EOT) to the project – which is due to be slated for completion by end-2014 – to 2015/2016 after it was initially delayed due to land acquisition issues.  

- The report also revealed that civil works are about 70% completed, and only 30% under the systems side. The JV had earlier awarded the systems job to the Balfour Beatty Rail Ansaldo Systems JV Sdn Bhd. Our own channel checks have indicated that the project was about 77% completed as at end-March. 

- To-date, we gather that the Balfour Beatty-Ansaldo JV is still awaiting approval for the systems part, where no major signalling and electrification systems have been installed, save for the concrete poles in isolated areas.     

- To recap, the MMC-Gamuda JV is the main contractor for the Ipoh-Padang Besar EDT project at an estimated project cost of ~RM12.5bil. The total track line is ~329km-long.

- From our brief update with management, we understand however that discussions are still ongoing on the project’s claims – which would cover the two EOTs that the JV has received due to land acquisition issues. Any successful claims from the government would likely translate into write-backs for the JV. 

- Ideally, the MMC-Gamuda JV would also likely keep with the timeline of November 2013 for now, as we believe it may need to redeploy capacity for the upcoming Sg.BulohKajang (SBK) MRT project.   

- Our HOLD call on Gamuda remains as the Sg.BulohKajang MRT line project wins have largely been crystallised, with only the RM8bil Gemas-JB double tracking project appearing to be the only other near-term catalyst. 

- On the flipside, we do not expect a tangible decision on another two additional MRT lines to materialise anytime soon – particularly, when the funding of it remains a concern for now. 

Sourse: AmeSecurities