Highlights

We returned home positive following our lunch meeting with Dato’ Lin, MD of Gamuda, whereby >15 analysts attended. Below are the salient points:

Next line.... Line 2 of the Klang Valley MRT project which spans 56km from Sungai Buloh to Putrajaya was shared with us (see Figure #1). This new MRT line is anticipated to cost RM24.9bn whereby Phase 1 (Sungai Buloh to Serdang) is expected to cost ~RM22bn and to start works in mid-2015 (see Figure #2).

Next step... The next step would be to table the concluded MRT line study to the Economic Council/Cabinet for approval. Thereafter, engagement with the various stakeholders i.e. the public and district/state authorities will begin. All in, contract awards can materialise by mid-2014. We believe that the project management and procurement system for the next MRT line will be similar to the current one.

Next prospect... Given Gamuda’s technical expertise, lower mobilisation costs and familiarity with the project owner, we believe that the company stands a strong chance in securing a sizable chunk of the next line. Assuming that Gamuda secures the tunnelling portion, which is estimated at RM4.75bn (adjusted for its 50% stake), this will double its outstanding orderbook to RM8.95bn from RM4.2bn (as of 1HFY13). Additionally, Gamuda will also further benefit if appointed as the Project Delivery Partner.

Other prospects... The prospects for the ~RM1.2bn Langat2 water treatment plant and ~RM7bn Gemas-Johor Bahru EDTP project remains good. Hence, this will further augment its order book. Of note, Gamuda has also joined the party for the proposed High Speed Railway project.

Landbanking... Management is on a lookout to replenish their landbank and has earmarked to spend ~RM1bn/year over the next 3 years to grow their landbank around the Klang Valley and Iskandar region.

Concession sale... The official offer for its highway and water assets is still pending after being delayed due to the election. This is a positive catalyst as it will unlock its concession value.

Risks

Execution risk; Failure in securing new projects; Political and regulatory risk; Rising raw material prices; Unexpected downturn in the construction and property cycle; Sharp depreciation of the VND.

Forecasts

FY13-15 earnings revised upwards by 2-19% mainly due to potential profits from the next MRT line.

Rating

HOLD

Although prospects for Gamuda remains bright, we believe that much of the positive catalysts have already been factored in its share price. Given that the current price has exceeded our TP slightly, we maintain our HOLD call.

Valuation

• TP revised upwards by 3.3% RM4.42 based on SOP valuation

Source: Hong Leong Investment Bank Research - 14 May 2013