- We maintain our BUY call on Gamuda with an unchanged fair value of RM5.80/share (10% discount to NAV/share). Gamuda announced that its joint entity, MMC Gamuda KVMRT Sdn Bhd has signed the project delivery partner (PDP) agreement with MRT Corp for the Sg. Buloh-Serdang-Putrajaya (SSP) or MRT Line 2.

- The PDP agreement entails the construction, completion, testing and commissioning of MRT Line 2. Local press reports indicate that the MMC-Gamuda JV will be responsible for the delivery of MRT Line 2 within the agreed targeted cost and delivery date.

- Apart from this, we understand that four new key performance indicators (KPIs) have been included in addition to the two for Sg. Buloh-Klang (SBK) or MRT Line 1. The additional KPI requirements are for:- (i) safety, health & environment; (ii) compliance with agreed quality standards; (iii) timely response to public complaints; and (iv) implementation of stakeholder management.

- The targeted completion date for Phase 1 of the MRT Line 2 is 31 July 2021, and 31 July 2022 for the second phase. More importantly, the signing of the award effectively formalises the terms and structure of the PDP contract. We expect construction works to commence by mid-2016, following the expected rollout of major work packages (e.g. tunnelling) by 2Q16.

- Equally, the award of the PDP contract puts the MMCGamuda JV in the driver’s seat for the tunnelling package (~RM12bil) of MRT Line 2. 

- The PDP award validates our earlier conviction that Gamuda’s newsflow will be sustained by three key event catalysts in 3Q15. Just last Friday, both the Selangor and Federal governments signed a supplementary agreement to push through the water restructuring exercise in the state – triggering renewed hopes of resumption in negotiations with SPLASH.

- Next up will be results of the PDP contract for the Penang Transport Master Plan (PTMP), for which Gamuda is reportedly to be one of the two finalists. 

- While the finer details are not disclosed in the announcement, local news reports indicate that the MMCGamuda JV is set to receive a PDP fee of 6% under the MRT Line 2, which is similar to that for MRT Line 1. 

- Pending more details, we maintain our earnings forecast for now. Assuming a 6% fee and that construction works will begin in 2H16, we estimate a RM0.19/share or 3% lift to Gamuda’s NAV (FY17F net profit: +6%). If Gamuda successfully clinches a 50% stake each in the tunnelling contract and PDP works for the PMTP, its NAV will rise  further to RM7.72/share (+RM1.26/share).