Secures Penang LRT Segment 1 Contract Worth RM8.3bn

Mass Rapid Transit Corporation Sdn Bhd (MRT Corp) has awarded the Penang LRT Segment 1 – Mutiara Line project to SRS Consortium Sdn Bhd, a 60%- owned subsidiary of GAMUDA. This RM8.3bn design-and-build contract encompasses the design, construction, and completion of elevated guideways, stations and a depot for light and heavy maintenance on Penang South Reclamation Island A. It also includes ancillary structures, at-grade park-andride facilities, utilities and services relocations, utilities buildings, external surface works, and other associated works. The scope of the project spans a 23.7km elevated railway viaduct stretching from Komtar to Island A, 19 elevated stations, and one provisional station on Island A.

Notably, Loh Phoy Yen Holdings Sdn Bhd and Ideal Property Development Sdn Bhd each hold a 20% stake in SRS Consortium, while MRT Corp acts as the project developer and asset owner of the Mutiara Line.

This project is slated for completion within 72 months by 2031, starting from Notice to Proceed and covers the period up to the date for Practical Completion.

Our Views

With GAMUDA holding an effective 60% stake, this project increases its YTD new job replenishment by RM5.0bn, bringing the total to RM13.7bn for FY25. Consequently, GAMUDA’s total unbilled order book has risen to RM37bn, equivalent to 3.5x its FY24 construction revenue. Based on management’s guidance of a targeted PBT margin of approximately 8%, this project is expected to generate a net profit of RM504.6mn, translating to an effective net profit of RM302mn over its construction period.

We are optimistic about this new job win, as it reflects the government’s commitment to enhancing public welfare through improved public transit systems, aimed at alleviating traffic congestion. Meanwhile, Transport Minister Loke Siew Fook announced that Segment 2 will open for tender around July this year, following the official tender for Segment 3 in December 2024.

To note, the Penang LRT Segment 2 covers a 6km cross-channel link with a 3.2km sea viaduct connecting the proposed Macallum station on the island to Penang Sentral in Butterworth via an over-the-sea rail bridge. Segment 3 will involve a turnkey system contract, covering the design, procurement, construction, testing, and maintenance of the rail system.

Including Segment 1, we estimate the total value of the Penang LRT project could exceed the initially anticipated RM13bn. Given the complexity of the project, particularly the over-the-sea rail bridge, which typically incurs higher construction costs, we estimate Segment 2 to be valued at RM5bn to RM7bn, However, we do not discount the possibility that any surplus in the estimated project cost may be funded through a public-private partnership (PPP) model, involving financial contributions from the private sector to ensure the successful completion of the entire project.

Looking forward, GAMUDA is well-positioned to secure the remaining two segments, supported by its strong technical expertise in railway construction and system provision, as demonstrated in its Australian railway projects.

Impacts

No changes to our earnings estimates, as the new job win falls within our FY25 new job replenishment assumption of RM20bn.

Valuation

We maintain our SOP-derived target price of RM6.30, inclusive of a 3% ESG premium based on our 4-star rating. Maintain Buy call on the stock

Source: TA Research - 14 Jan 2025