Gamuda  and  MMC  Corp  announced  that  the  50:50  MMC-Gamuda  JV had on 28 October 2014 received a Letter from MRT Corp appointing a joint  venture  company  to  be  established  between  Gamuda  and  MMC Corp  for  the  implementation  of  the  KVMRT:  Sungai  Buloh-SerdangPutrajaya  Line/Line  2  Project.  The  terms  and  conditions  of  the  PDP’s appointment will be contained in project delivery partner agreement to be negotiated and agreed.  (Source: Bursa Malaysia)

Comments:  The  appointment  of  a  JV  to  be  established  by  MMC  Corp and Gamuda did not come as a surprise, following the good progress in the  implementation of  the  Sungai  Buloh-Kajang  Line/Line  1 Project.  As for  the  SBK  Line,  the  JV  is  likely  to  be  50-50  owned.  Terms  and conditions,  including  the  PDP  fees,  are  to  be  negotiated  and  agreed upon. The PDP fee for the SBK Line is 6% but the fee for Line 2 may be as  low  as  2%,  which  is  still  profitable  for  the  JV  considering  the  costs already spent. The other variable would be the size of the elevated works for Line 2 which will come under the responsibility of the PDP.

Next to be decided by the government and MRT Corp is the appointment of the underground works contractor for Line 2. We expect another 50:50 JV to be established by MMC Corp and Gamuda to be appointed as the underground works contractor.

We  maintain  our  forecasts,  ratings  and  target  prices  for  Gamuda (RM4.99, ADD TP RM5.30) and MMC Corp (RM3.15, BUY TP 3.15).

Source: Affin Hwang Capital Research - 30 Oct 2014