Gamuda has announced that its 60%-owned SRS Consortium has on 1 July 2020 executed the Master Agreement with the Penang state government in respect of the appointment of the consortium as the Project Delivery Partner (PDP) to manage and deliver the Penang Transport Master Plan (PTMP). We believe the signing of the Master Agreement is positive following the long negotiation process since August 2015, allowing the project to kick start possibly in 1H21. We make no changes to our EPS and RNAV estimates as the project is reflected in our figures. Current FY21E PER of 19x looks fair and the stock is trading close to our RNAV-based target price of RM3.75. Maintain our HOLD call.

Signed Master Agreement With Penang State Government…

Under the Master Agreement, SRS Consortium is appointed the PDP to manage and deliver the PTMP. The PTMP comprises (1) public transport components including rail transit and highways; (2) reclamation of Islands A, B and C; and (3) funding plan, which includes the provision of a bridge financing, whereby the PDP will provide a bridge loan of RM1.3bn to the Penang state government, which is the owner, upon terms to be mutually agreed to bridge the funding gap in respect of Island A reclamation. The PDP fee is between 5.0-5.75%.

… Allows Project to Kick Off Possibly in 1H21

We believe the signing of the Master Agreement is positive following the long negotiation process since August 2015, allowing the project to kick start possibly in 1H21. The entire PTMP is estimated at a project value of RM32bn for all the components, providing SRS Consortium with an estimated long-term PDP fee income of RM1.60-1.84bn over the 15-20 year development period, based on the PDP fee rate of 5.0-5.75%. However, the speed of implementation of the project will depend on the ability of the state government to secure funds for the project and whether the federal government will assist in providing sovereign loan guarantees.

Maintain Our HOLD Call

We make no changes to our EPS and RNAV estimates as conservatively we have assumed the project will start contributing to earnings in FY23E and DCF of the PDP fee contributing RM457m to our RNAV (5% of total). We believe current FY21E PER of 19x looks fair and the stock is trading close to our RNAV-based target price of RM3.75. Maintain our HOLD call. Key upside/downside risks are faster/slower construction progress billings.

Source: Affin Hwang Research - 2 Jul 2020