KEY INVESTMENT HIGHLIGHTS

• Gamuda was appointed as Project Delivery Partner (PDP) of PTMP

• The Group may begin construction works (for LRT, PIL and PSR) either sequentially or simultaneously depending on the financing model

• No changes to our earnings forecasts

• Upgrade to BUY due to recent price weakness with unchanged TP of RM3.70

Based on the Bursa announcement dated 2nd March 2020, Gamuda was appointed as Project Delivery Partner (PDP) for the implementations of roads and public transport projects in Penang (Penang Transport Master Plan Strategy 2013-2030) (PTMP). The validity of the Letter of Award (LOA) has been extended by the State Government to 31 August 2020 vide its letter dated 28 February 2020 which was duly received and accepted by SRS Consortium on 2 March 2020.

To recap, PTMP involves the construction of an undersea tunnel connecting the island to the mainland, highways, light rail transit (LRT), monorail as well as comprehensive bus network between the island and Seberang Perai. SRS Consortium is a 60:20:20 joint venture among Gamuda, Loh Phoy Yen Holdings Sdn Bhd, and Ideal Property Development Sdn Bhd. We note that there are three projects under SRS Consortium, namely (1) the light rail transit (LRT) system, (2) the Pan Island Link (PIL) highway, and (3) the massive Penang South Reclamation (PSR). The Group may begin construction works (for LRT, PIL and PSR) either sequentially or simultaneously depending on the financing model. After this agreement, the design works will start and the LRT, the PIL as well as the reclamation work for the south island shall take place.

Impact on earnings. We make no changes to our estimates as this juncture as we lack details of the project.

Upgrade to BUY with unchanged TP of RM3.70. Due to recent price weakness, we upgrade our recommendation to BUY with an unchanged TP of RM3.70, pegging its FY21EPS to PE of 14.0x

Source: MIDF Research - 3 Mar 2020