We maintain our Buy call, forecasts and fair value of MYR5.45 on the back of Gamuda’s proposed acquisition of 724 acres of land in Rawang, Selangor, that will help to sustain its township development business over the long term.  The significant roles played by Gamuda in the Klang Valley MRT project make it undisputedly the best proxy to public infrastructure spending in Malaysia.

- Pricing within range.   Gamuda has won a tender for 724.3 acres of leasehold agricultural land in Kg Sg Serai, Kuang (11km south of Rawang Town), Selangor, for MYR620m cash, translating to about MYR20 per sq ft (psf).  Conservatively, assuming an efficiency of 60%, the net price works out to be about MYR33 psf that falls well within the asking price range of about MYR30-50 psf in the market.  We are aware of comparable but smaller land parcels up for sale in the area including: (1) A piece of land measuring 10.9 acres with an asking price of MYR24m or MYR51 psf; and (2) Another piece of land measuring 6.1 acres with an asking price of MYR8m or MYR30 psf.    

- Integrated township.  Gamuda intends to develop a MYR5bn integrated township over 16 years.  This will help to sustain its property development profits over the long term.  No change to our forecasts as we do not expect contribution to kick in within our forecast period.  We are positive on the latest development.

- Gearing remains manageable.   Ceteris paribus,  the MYR620m cash outlay will raise Gamuda’s net debt and gearing of MYR969m and 0.23x as at 31 Jan 2013 to a manageable MYR1.6bn and 0.38x.   

- Investment case.  With the 13th general election now out of the way, we believe investors will refocus on sector fundamentals that are reasonably attractive underpinned by a construction upcycle.  We like Gamuda as it is the best proxy to public infrastructure spending in Malaysia, given the significant roles it plays in the Klang Valley MRT project.  Fair value is MYR5.45 based on “sum of parts” (see Figure 2), valuing its construction business at 17x 1-year forward earnings, at a premium to our 1-year forward target PER for the construction sector of 10-16x to reflect Gamuda’s large market capitalisation and high share liquidity.  Maintain BUY

Source: RHB