The federal government has officially taken over the Penang LRT project from the Penang state government and offered GAMUDA's 60%- owned SRS Consortium civil works contracts for the first segment of the project. We believe that GAMUDA stands to be the direct beneficiary on the back of its well-established track record in railway infrastructure building and strong footprint in Penang. Maintain BUY with an unchanged SOP-derived TP of RM6.18/share.

News Highlights

Following productive discussions among various stakeholders, the Federal Government has finally announced its intention to take over the Penang LRT project from the Penang state government. Additionally, the government extended a single sourcing request-for-proposal for civil work contracts on the first segment of the projects to GAMUDA's 60%-owned SRS Consortium Sdn Bhd (SRS, a JV between Gamuda Berhad: Loh Phoy Yen Holdings Sdn Bhd: Ideal Property Development Sdn Bhd of 60:20:20).

A budget of RM10bn has been earmarked for the takeover of this Penang LRT project, as outlined in Budget 2024. However, the specifics regarding the project's actual value and details are still pending negotiation outcomes between SRS and the project developer and asset owner, Mass Rapid Transit Corp Sdn Bhd (MRT Corp). These discussions are expected to be finalised within six months before commencing work in 4QCY24, with a scheduled completion date by end-2030.

As per the announcement, the 29km Penang LRT project will be divided into three segments: (i) Silicon Island to Komtar, (ii) Komtar to Penang Sentral, and (iii) a turnkey system and rolling stocks contract based on a Build-MaintainTransfer (BMT) framework. This includes a route of 20 stations with 2 interchange stations in Komtar and Penang Sentral. SRS will have exclusive rights to plan and develop the first segment, while the remaining two segments will be open for tender to both international and local firms.

Our Views

Despite the lack of clarity for the project at this juncture, we view the announcement positively as we anticipate that GAMUDA is well-positioned to benefit directly from securing this new RM10bn project, which includes land acquisition and construction works. This is supported by GAMUDA's previous successful bid for the Penang South Island (PSI) reclamation project, which would allow efficient resource utilisation to establish railway connectivity from the reclaimed island to Komtar. Additionally, GAMUDA is in a favourable position to capitalise on its exclusive tunnel boring capability, particularly as some LRT stations may be built underground.

This potential contract could be the most significant job win after the Kaohsiung MRT (RM3.0bn), Upper Padas Hydroelectric (RM4bn) and Singapore MRT (RM1.8bn) secured in FY24. Consequently, it is poised to lift its YTD job wins to RM18.8bn) and is set to achieve the FY24 job wins target of RM25bn sooner than expected.

Impacts

No Changes to Our FY24-26F Earnings Forecasts.

Valuation

We maintain our SOP-derived target price at RM6.18 and Buy call on the stock.

Source: TA Research - 1 Apr 2024