News    Yesterday, Gamuda announced that it has accepted an offer from TPPT Sdn Bhd to acquire the latter’s land (leasehold) measuring approximately 727.3 acres for RM620m (RM20 psf). The proposed acquisition is expected to complete in 3QCY13.

The land situated in Kampung Sungai Serai, Kuang, Rawang, about 11 kilometres  (“km”) south of Rawang Town. It is immediately next to the Rawang South Interchange of the North-South Expressway whereby the Guthrie Corridor Expressway and LATAR Highway connected on. 

Similar like its successful Kota Kemuning, Bandar Botanic and Horizon Hills, Gamuda will also launch comprehensive and an integrated township development comprising residential and commercial properties on the land. It plans to launch the project in the next 2 years which it expects to generate a GDV of RM5.0b over a sales period of 16 years. 

Comments    We are Positive on the announcement. We think that the land price of RM20psf is rather fair vis-à-vis market price surrounding the area that is ranging between RM18psf and RM25psf. 

Funding would not be an issue for Gamuda as we estimate its net-debt-equity would only increase to 0.41x from 0.27x after this exercise, which we think still manageable.

Accessibility to major link. Interestingly, there is a new interchange (“IC”) under construction linking the Land directly into the Rawang South Interchange of the North South Expressway. The IC is expected to complete in August 2014. This could be the catalyst for the project.

Ride on the “affordability” trend. By buying the land, we  are  of  the  view  that  Gamuda  is  leveraging  on  the current property demand trend (i.e. affordable housing segment). We gather that standard terrace homes are still priced at below RM500k.

Outlook   While the proposed acquisition of land is part of their landbanking activities to improve earnings growth for the property division, we remain upbeat on its Construction division with current orderbook stood at

Forecast   No change in our earnings estimates at this juncture pending completion of exercise and more details from Gamuda on the launch of the project.

Rating   Maintain OUTPERFORM

We reiterate our OUTPERFORM rating on Gamuda as we believe it is one of the construction stocks that will benefit most from robust rail infrastructure in Malaysia.

Valuation    We maintain our Target Price of RM5.20, based on PER of 16.5x on FY14 EPS. 

Risks   Delays in MRT executions and awards projects.

Rising building material costs.

Source: Kenanga