News

• PDP appointment for PTMP. The Penang Government has appointed SRS Consortium as the PDP to undertake the implementation of roads and public transport projects under the Penang Transport Masterplan (PTMP). SRS Consortium consists of Gamuda (60%), Ideal Property Development (20%) and Loy Phoy Yen Holdings (20%).

Comments

• Emerging the winner. To recap, earlier this year, 6 bidders submitted their proposal for the PDP role. In our feature report on the PTMP back in March, we highlighted Gamuda as the top contender for the role. Chief Minister Lim Guan Eng said that the consortium was selected based on its “extensive expertise on MRT, public transport infra and large scale townships”. Overall, this award is within our expectations although we are positively surprised by the speed at which the Penang Government is moving.

• Who are the partners? Ideal Property is a developer that has completed over RM1bn worth of projects, mainly in Penang. Loy Phoy Yen Holdings on the other hand, is said to be related to the Boon Siew Group, best known for being the first sole distributor of Honda motorcycles in Malaysia.

• Details still sketchy. Star Biz reported that Phase 1 of the PTMP will involve (i) LRT (RM5.3bn); (ii) 20km expressway linking Bayan Lepas and Tg Bungah (RM4.5bn); (iii) tram and catamaran (RM100m) and; (iv) highway interchange upgrading (RM100m). As for the PDP fees, we reckon that it will be at least 6%, similar to the Klang Valley MRT. This could potentially be higher given the risk associated with payments via land swap (i.e. reclamation rights).

• Timeline ahead. Management guided that any earnings contribution from the PTMP will only happen after 1.5 years at earliest, inline with Penang’s target to roll out Phase 1 by 2017. The immediate key hurdle that the consortium needs to overcome is obtaining the necessary approvals and permits from the Federal Government for the proposed public transport projects.

Risks

• Politics getting in the way as Penang is DAP led while the Federal administration is under Barisan Nasional.

Forecasts

• Unchanged given the lack of details on the PDP. Our earnings do not impute any contributions from the PTMP.

Rating

BUY, TP: RM5.01

• Since our rating downgrade to Hold in March, share price has declined by 17.3%. While there are no changes to our earnings, there is now sufficient upside to warrant a BUY call again. This recent PDP appointment should also serve as a positive impetus for share price. Other catalysts include the roll out of MRT Line 2 and resolution to the water saga.

Valuation

• TP maintained at RM5.01 based on SOP which implies FY15-16 P/E of 17x, inline with its 3 year mean of 16x.

Source: Hong Leong Investment Bank Research - 17 Aug 2015