Gamuda and its Taiwanese JV partner, via their 70%:30% joint-venture, have secured a construction contract in Taiwan valued at RM932m (or RM653m based on Gamuda’s 70% share). This brings its YTD contract wins to RM1.05b, versus our full-year assumption of RM2.4b. No change to our earnings forecasts. We are keeping our MP call and SoP-derived TP of RM3.90 with a bias to upgrade pending the signing of the PTMP agreement.

Making further inroads in Taiwan. Gamuda’s 70%:30% joint-venture with Dong-Pi Construction Co. Ltd. (a Taiwanese contractor specialising in tunnel construction and marine engineering) has been awarded a construction contract for a seawall project in Taiwan. The job, which involves the construction of 4,014m length of seawall structures, dismantling of existing seawall structures and the Southport shore protection works, is valued at a contract sum of NTD6,817.4m (or approximately RM932.5m) for a period of 60 months (from January 2020 until January 2025). This comes after Gamuda previously won a RM0.4b marine bridge contract in Taiwan.

Lifting existing order-book to RM9.3b. This latest contract win of approximately RM653m (based on Gamuda’s 70% share) will take its YTD order-book replenishment to RM1.05b. This, in turn, will add to its existing order-book from RM8.6b (as of Oct 2019) to RM9.3b. No change to our earnings estimates as we have penciled in an assumption of contract wins of RM2.4b for the full year.

PTMP next? In a way, Gamuda’s ability to replenish its order-book with overseas contracts amid the prevailing tough local industry landscape has reaffirmed its reputation as a resilient and competitive construction group. On the domestic scene, Gamuda is currently working to seal the Penang Transport Master Plan (PTMP) with the Project Delivery Partner (PDP) agreement likely to be inked as soon as this month. Following which, under the PTMP master plan, the LRT project (which has already secured a federal government guarantee for its bond funding) and land reclamation works for the first of three islands under PTMP are scheduled to take off in 2HCY20.

Upward bias to our target price. We are maintaining our MARKET PERFORM call with an unchanged SoP-derived target price of RM3.90. Pending the release of details on PTMP (such as the PDP fee, project values and tenures, etc), there is potential upside to our TP. Our on- the-back-of-the-envelope calculation suggest that Gamuda may potentially rake in a share of profit of RM65m in the first year based on preliminary assumptions including project value of RM8.4b for LRT, RM7.5b for PIL highway and RM8b for Island A reclamation works spread over 8-10 years. Applying a PER of 16.1x (1SD above its historical mean), this could translate to an incremental value of 42.0 sen/share.

Source: Kenanga Research - 3 Jan 2020