• We maintain BUY on Gamuda with an unchanged fair value (FV) of RM6.54/share, derived from SOP and implies a FY25F P/E of 12x – at parity to its 15-year mean of 15x. No changes to our earnings forecasts and 4-star ESG rating which accords a 4% premium.

• Transport Minister Anthony Loke Siew Fook announced on Friday 29 Mar 2024 that the cabinet has approved the Penang light rail transport (LRT) project with the details listed below:
  
  ➢ MRT Corporation is the project developer and asset owner. This means the federal government will be taking over the project away from the state government as MRT Corp. is wholly-owned by the Ministry of Finance.
  
  ➢ The project is split into 3 components, the first is the civil and construction works from Silicon Island to KOMTAR in George Town. This line is 29km long with 20 stations. The second component is from KOMTAR to Penang Sentral. The third is the turnkey contract for systems and rolling stocks on a build-maintain-transfer basis.
  
  ➢ Gamuda’s 60%-owned SRS Consortium is appointed as the project delivery partner (PDP) for the first segment.
  
  ➢ No mention of the value of this project as negotiations are currently ongoing with the federal government. This is expected to take 6 months. The best-case scenario is for construction to commence in 4QCY24, we estimate.
  
  ➢ Targeted completion by 2030, taking roughly 6 years.

• This is welcome news as it came earlier than we expected. The appointment of SRS is not a surprise as they have done the bulk of the preliminary work, which will greatly aid efficiency. Furthermore, Gamuda is the obvious frontrunner as it has a comprehensive track record, significant experience in building public transport infrastructure projects and a strong balance sheet with comfortable FY24F net gearing of 0.3x.

• The Penang LRT Project is widely claimed to cost RM10bil, although this is not an official statement. Our estimate for the project value apportionment split by components 1, 2 and 3 are 50%, 40% and 10% based on these assumptions:
  
  i. Component 1 has 20 stations across 29km of tracks, with an average of 1.45km of tracks between stations.
  
  ii. Component 2 has 8 stations across 17km of tracks including a 3.5km rail bridge across the Penang channel. This translates to 2.1km of tracks between stations.
  
  iii. Rolling stock values of KL LRT/MRT projects as a guide.

• Assuming an effective RM3bil contract award from component 1 translates to 12% of the RM25bil fresh orders that management had guided for FY24F-FY25F. We are positive on this development as potentially more jobs could still be secured from the other Penang LRT packages and mega projects.

• Gamuda is currently trading at an attractive FY25F PE of 11.8x, a 21% discount to its 15-year average of 15x.

Source: AmInvest Research - 1 Apr 2024