MOF announced that the cabinet took the offer from GAMUDA-MMC JV on the RM3.6b cost reduction for MRT2 tunnelling works bringing the cost down from RM16.7b to RM13.1b. As such, earnings for FY19-20E has been upgraded by 6%, respectively. BUY with a TP of RM3.35. Currently, it is only trading at 12.0x FY19E PER below KLCON's 5-year average of 13.4x. 

The Ministry of Finance (MOF) announced that the cabinet took the offer from GAMUDA-MMC JV on the RM3.6b cost reduction for MRT2 tunnelling works bringing the cost down from RM16.7b to RM13.1b. The value for the remaining works would be reduced from RM9.6b to RM6.0b. To recap, the government was looking at cost savings ranging from RM4.2-5.8b savings for the remaining tunnelling works. 

In the renegotiated terms, it would include the cancellation of two underground stations, that is, Bandar Malaysia (North) and Bandar Malaysia (South) and we opined that the cancellation of these stations to be reasonable at this point due to the lack of development activities in Bandar Malaysia. Government's green light on the tunnelling works allows GAMUDA-MMCJV to carry on with their works in full swing albeit at a lower contract sum of RM6.0b for the remaining works without compromising the original timeline, which MRT2 is scheduled to be fully operational in year 2022. 

After securing the tunnelling works on renegotiated terms, it brings GAMUDA's orderbook to RM3.5b (from RM0.5b) and its outlook will be less dependent on its property division, which have unbilled sales RM2.3b providing them another 1-2 years of earnings visibility and also its infrastructure division which consists of toll roads. 

Source: Rakuten Research - 29 Oct 2018