Twist and Turns

We understand that the Gamuda-George Kent-MMC Corp (GGM) consortium is among the frontrunners for the Klang Valley MRT Line 3 (MRT3) turnkey contract (it would likely have to share the turnkey contract with China Communications Construction Co (CCCC)). Gamuda is also bidding on the Project Delivery Partner (PDP) contract for the Kuala Lumpur-Singapore High Speed Rail (HSR) project. Both projects offer potential earnings upside. Gamuda is our top large-cap BUY in the construction sector with an RNAV-based TP of RM5.86.

Likely to Win MRT3 Contract

We believe the civil works for the RM45bn MRT3 project is likely to be shared between the GGM consortium and CCCC. The MRT3 contract is expected to be awarded by April 2018. At this juncture, the value of the contract works to be awarded to each party is uncertain. Gamuda’s equity stake and share of works within the GGM consortium is also not disclosed.

Potential Growth in Order Book

Assuming GGM wins 50% of the contract value and Gamuda’s share is 40- 50% in the consortium, the MRT3 project could lift Gamuda’s order book by RM9.0-11.3bn. This is above management’s 2018 new contracts target of RM6-8bn and still within our earnings forecast assumption of RM15bn of new contracts in FY18-19E, and would lift its current construction order book from RM14.1bn (RM7.3bn civil works and RM6.8bn PDP works).

Stiff Competition for HSR

We gather that the PDP contract for HSR infrastructure works in Malaysia could be split into two sections: Johor and the non-Johor portion linking to KL. The Johor portion could go to the YTL Corp-SIPP joint venture (JV) while the non-Johor portion will likely see stiff competition between 2 local consortiums, ie, the IJM Corp-Sunway Construction-Jalinan RejangMaltimur Resources JV and the Gamuda-MRCB JV. The estimated project value is RM35-40bn and the contract award is expected in mid-2018. Assuming the Gamuda-MRCB JV wins 50% of the PDP contract and Gamuda’s share of the work is 50%, the HSR project would lift its order book by RM8.8-10bn.

Reiterate BUY Call

We reiterate our BUY call with an RNAV-based 12-month target price of RM5.86. Gamuda remains our top pick among the large-cap construction stocks as we see it as a proxy for the massive infrastructure spending plan in Malaysia. Key downside risk: further delays in securing new contracts.

Source: Affin Hwang Research - 15 Mar 2018