KEY INVESTMENT HIGHLIGHTS

• Gamuda and MMC Corporation (its 50% joint venture partner) have inked two agreements which were executed with MRT Corp

• This process managed to yield savings of RM8.82b, from RM39.35b to RM30.53b

• The current work progress for the Mass Rapid Transit Sungai Buloh-Serdang-Putrajaya Line (MRT2) is now 70% complete

• The execution of both agreements is expected to have no material effects on FY20 earnings

• Maintain NEUTRAL with unchanged TP of RM3.70

Based on the Bursa announcement dated 17th January 2020, Gamuda and MMC Corporation (its 50% joint venture partner) have inked two agreements which were executed with Mass Rapid Transit Corporation Berhad (MRT Corp). These two agreements namely (1) Supplemental Agreement to the PDP Agreement between MMC Gamuda KVMRT (PDP SSP) Sdn Bhd, and (2) Novation Agreement between PDP SSP, MMC Gamuda KVMRT (T) Sdn Bhd. The execution of the agreements is to formalise the role of MMC-Gamuda to deliver and be responsible for the design, execution and completion of the entire SSP Line (for both above ground and underground) on a turnkey basis.

It is worth noting that this process managed to yield savings of RM8.82b, from RM39.35 billion to RM30.53 billion (22.4% from the original cost). The factors that attribute to the cost saving were (1) conversion to turnkey model to save on PDP fee, (2) rationalisation in the allocation of reimbursables, (3) contingencies and provisional sums, (4) the postponement of Bandar Malaysia stations, and (5) scope rationalisation for electrical and mechanical system works. However, the savings will not be immediate since it is spread over 20 years.

The current work progress for the Mass Rapid Transit Sungai Buloh-Serdang-Putrajaya Line (MRT2) is now 70% complete.

Major works are expected to be completed in 2022, and by 2023 MRT2 is expected to become fully operational. The 1st phase (Kwasa Damansara station to Kampung Batu station) will begin operating in July FY21. Meanwhile the 2nd phase (Kampung Batu station to Putrajaya Sentral station) will become operational by January FY23. Moving forward, the MRT 2 project is anticipated to be completed on time and under budget.

Source: MIDF Research - 20 Jan 2020