There has been more positive newsflow on the MRT project. The PDP agreement has been officially signed with announcements made by Gamuda and MMC. As expected the fee is 6% less value of the tunneling works for the Sungai Buloh to Kajang (SBK) line MRT. Apart from this the PDP will receive in total 13.9% reimbursable costs to cover overheads, engineering (design and supervision) and site investigation where the breakdown is - i) 5.3% to cover overheads where 456 workers have been hired ; ii) 2.9% for engineering and consultants conducting site investigations, topographical surveys and iii) 5.7% for engineering consultants, architects, quantity surveyors and system integrators. The other important point is the entire quantum of allowed cost overruns or contingency funds is capped at 15% where anything over this limit will be borne by the PDP.

In our view, the terms of the PDP agreement is attractive for a project of this magnitude where it will have to manage all the contract winners for the 90 packages ensuring timely delivery within the budgeted cost. The total PDP fees works out to be RM480m assuming a project cost of RM8bn (less land acquisition) and 6% fees. This works out to be RM0.12/share for Gamuda and RM0.08/share for MMC. This has yet to be factored into our SOP value.

MRT Co has also issued the detalied list of packages for the construction of the SBK Line which includes when tenders will open, award date and completion of projects. To recap, V5 (Maluri Portal - Plaza Phoenix) and V6 (P. Phoenix - Bandar Tun Hussein Onn) have been awarded to IJM and Ahmad Zaki respectively. The next packages are V4 (Sect 16 - Semantan portal), V1 (Sg. Buloh to Kota Damansara), V2 (Kota Damansra to Dataran Sunway) and V3 Dataran Sunway to Sect. 16 where tenders will be called in 2Q12 and award will be in 3Q12. We expect contract sizes to be chunky for each pacakge at between
RM700m to more than RM1bn. There will be an open and bumiputra category where the listed beneficiaries for the open category include Sunway, Mudajaya, Muhibbah, IJM Corp, MRCB and Gadang. The bumiputra category listed beneficiaries include Naim, TRC Synergy, TSR Capital, Ahmad Zaki and Zecon.

As for the tunneling portion, the tender calling period is between 2Q-3Q12 with awards in 3Q-4Q12. We continue to believe MMC-Gamuda JV is the frontrunner for the RM7-8bn tunneling portion driven given the strong multiplier effect on the economy if the project award is kept domestic. MRT Co. estimates the mutliplier effect on the economy from this project to be 2.5x or RM213bn flowing into the economy until 2020. We maintain our Buy ratings on Gamuda (TP RM4.50) and MMC Corp (TP RM3.70).

Source: HwangDBS Research 13 Feb 2012