- We maintain our BUY call on Gamuda with an unchanged fair value of RM5.80/share (10% discount to NAV). Gamuda announced last Friday that it had via the SRS Consortium, received a letter of award (LOA) from the Penang Government to act as the Project Delivery Partner (PDP) for the Penang Transport Master Plan (PTMP).

- Gamuda has a 60% stake in the consortium. The other two are Penang-based firms Ideal Property Development Sdn Bhd (20%) and Loh Phoy Yen Sdn Bhd (20%).

- Under the LOA, the SRS Consortium will implement road and public transport projects in Penang under the PTMP (2013-2030). The PDP scope involves the implementation of an alternative transport master plan that comprises different public transport components in Penang Island and Seberang Prai on the mainland.

- The PDP agreement is to be consummated within six months from the LOA, once all the terms of conditions have been agreed to. This confirms Gamuda’s role as the winning PDP bidder for the PTMP via the SRS Consortium. By extension, it validates our earlier conviction of the group’s status as a firm favourite for this massive project.

- The Star recently reported that key components under the first phase of the PTMP include a RM5.3bil LRT project as well as a RM4.5bil 20km pan-island linked expressway linking Bayan Lepas and Tg. Bungah. Other schemes include a RM100mil train and catamaran system and a RM100mil highway interchange.

- While further details remain sketchy for now, we estimate that the indicative value for the PDP contract is not far off from our earlier estimates of ~RM9bil. On the other hand, the higher effective stake of 60% that Gamuda will hold for the PDP works is higher than our initial estimate of 50%.

- As the PDP award includes the provision of reclamation sites, we also believe that a key consideration for the PDP will involve land swaps. This may, in our view, include prime sea-fronting land located along transport-oriented developments to be mooted under the PTMP.

- As per our company update latest Friday, Gamuda is looking to appoint local contractors to undertake soil and alignment studies for the LRT project. Construction works are expected to kick off by 2017.

- We retain our earnings estimates pending more concrete details. Assuming Gamuda has a 50% stake in the PDP consortium with a contract value of RM9bil, its NAV will rise by RM0.83/share. If it secures an additional 50% stake each in the PDP contract/tunneling works for MRT2, Gamuda’s NAV is set to rise by RM1.26/share or 19% (fair value up by 19% from RM5.80/share to RM6.95/share).

Source: AmeSecurities Research - 17 Aug 2015