- Maintain BUY on Gamuda Bhd with our fair value raised from RM4.36/share to RM5.38/share, pegging the stock at a lower discount of 5% (previously: 10%) to its revised SumOf-Parts (SOP) value of RM5.40/share.

- The fair value upgrade primarily reflects our conviction of Gamuda’s status as a prime beneficiary of renewed infrastructure spending, where the conclusion of the 13^th General Elections removes a major overhang.

- We came away from Gamuda’s luncheon briefing yesterday feeling more upbeat about its prospects. Firstly, the MRT 2 or Sg.Buloh-Serdang-Putrajaya (SPP) line may receive federal approval by July 2013. By extrapolating the cost structure for the on-going Sg.Buloh-Kajang (SBK) MRT line, the SPP line may initially cost ~RM25bil.

- We expect this new line to be ‘shovel-ready’ by mid-2015. This is when the civil portion of the SBK works is tipped to be substantially completed, thus ensuring the availability of manpower and equipment.

- This implies that contract awards for the SSP line could materialize by early-2015. Meanwhile, the third MRT line (Circle Line) is firmly on the cards, where its implementation would likely be two years from the former.

- Secondly, the MMC-Gamuda JV are strong bets for future MRT jobs – given its proven rail-based expertise coupled with ownership of ten tunnel boring machines (TBM) under the SBK line that can be re-deployed. The PDP for the SSP line could be announced shortly after its approval.

- Thirdly, Gamuda is also eyeing a role in the upcoming KLSingapore High Speed Rail where it could tie-up with foreign partners. Other notable bids in the near term include the Gemas-JB double tracking, JB-Singapore Rapid Transit System and Langat 2.

- Fourthly, Gamuda has set aside some RM3bil to expand its landbank over the next three years. The targeted areas would be across major cities in Malaysia. Some of these are at the advanced stages of negotiations.

- Fifthly, it expects to see more progress on water consolidation efforts in Selangor post-elections – and likewise, the toll assets. Of this, the water business (SPLASH, Gamuda Water) and Litrak alone account forRM0.56/share (10%) and RM0.43/share (8%) of SOP.

- In our view, part of proceeds from the sale of these assets (if it materializes) will likely be returned to shareholders if it is not deployed for more landbanking needs.

Source: AmeSecurities