- We maintain our BUY call on Gamuda with our fair value tweaked slightly higher at RM5.80/share (previous: RM5.75/share) on a 10% discount to our revised NAV/share of RM5.80/share. Despite lowering our forecasted earnings, our fair value is nudged upwards to mainly account for new landbank acquired over the two years and a higher estimate for the Klang Valley’s MRT Line 2 (MRT2) project.

- Gamuda remains our top large cap construction pick moving into 3Q15 ahead of three event catalysts. To begin with, Gamuda is reportedly one of two parties remaining in the race to the post as the Project Delivery Partner (PDP) for the Penang Transport Master Plan (PTMP).

- Having being chosen the PDP for MRT1 and the upcoming MRT2 along with a proven pedigree in undertaking several high profile transport-related projects both at home and abroad (e.g. STORM Tunnel, Kaohsiung, Ipoh-Padang Besar Double Tracking, New Doha International Airport).

- The first contracts under the PTMP are only scheduled to be dished out in 2017 after detailed planning works are carried out. Crucially, it provides Gamuda with immediate exposure to the Penang property market, as a bulk the returns for the PDP would mostly involve prime, stateowned land as payment-in-kind.

- Second of all, the PDP contract for MRT2 – already awarded to the MMC-Gamuda JV – should be signed in two months’ time. This should set the stage for the roll-out of major work packages by mid-2016 – including the tunneling works (~RM12bil) for which the JV is again a hot favourite. Our current forecast does not take into account both the PTMP and MRT2. Other prospective bids include the Gemas-JB double tracking and Pan Borneo Highway.

- Then, there is the renewed hope of a breakthrough of the water impasse in Selangor – both the Federal and state governments are set to iron out any unresolved issues by Hari Raya. If this materializes, negotiations on SPLASH’ disposal could then resume with a view of wrapping it up by year-end. On our estimates, Gamuda’s water assets accounts for c.RM1.5bil (RM0.59/share) or 9% of its NAV.

- Just by including the PDP contract for MRT2, we estimate a 3% accrement (RM0.17/share) to Gamuda’s NAV. If Gamuda successfully clinches a 50% stake each in the tunneling contract and PDP works for the PMTP, its NAV will rise further to RM7.72/share (RM1.26/share; +19%).

- From 32% in January, Gamuda’s foreign shareholding has fallen below its7-year low to 27% as at end May (early May: ~27%). Hence, any share price weakness is a good time to accumulate the stock ahead of a profusion of positive newsflow just around the corner.

Source: AmeSecurities Research - 6 Jul 2015