Gamuda eyes RM3bil to RM4bil worth of infrastructure projects over the next 12 months.
KUALA LUMPUR: CIMB Equities Research has raised the target price for Gamuda Bhd from RM5.92 to RM5.97 – which is an upside of 21.8% from its last traded price of RM4.90 while the infrastructure and property company eyes RM3bil to RM4bil worth of infrastructure projects.
The research house said on Thursday it had raised its target price as it rolled over its valuation to end-2017 (still pegged to a 10% realised net asset value (RNAV) discount.
“We continue to like Gamuda for its earnings turnaround in FY17F and exposure to large-scale rail projects. It remains our sector top pick. Downside risk is delay in job rollouts but this is outweighed by the revival of job wins, sale of water asset and the likely recovery in foreign shareholding (currently at a low of 22%),” it said.
The research house said the core net profit for the fiscal year ended July 31, 2016 (FY16) was 3% above its and 2% ahead of consensus forecasts. The overall results were broadly in line. The 8.3% decline in core net profit was largely expected, given the tail-end recognition of MRT 1 earnings and lower property development margins.
FY16 marked an inflection point where new MRT 2 earnings on the back of an all-time high order book of RM9bn began to flow into FY17.
“Potential larger-value construction wins was the main positive surprise from Gamuda's results briefing. Over the next 12 months, management targets to secure RM3bil to RM4bil worth of infrastructure projects. These could come from: 1) LRT 3, 2) subcontract works for the Gemas-JB double-tracking rail project, and 3) Pan Borneo Highway in Sabah. The new guidance puts the value of each targeted package at RM1bil,” it said.
CIMB Research said with the award phase of MRT 2 underway, MRT Corp is now targeting to submit the feasibility studies for MRT 3 (the last component of KVMRT) by end-2016.
MRT 3 is likely to be largely underground and the most tunnel-intensive. The potential contract value could be substantially higher than the RM15.5bn underground scope for MRT 2 given the higher cost/km.
Gamuda has so far secured underground packages from MRT 1 and MRT 2 via the MMC-Gamuda JV (50:50).
“Gamuda is positioning to tender for the RM30bil-RM40bil KL-Singapore high-speed rail (HSR) project now that the project has better tender time visibility, that is end-2017.
“Updates on the sale of 40%-owned Splash support our view that this angle could be revived in 4Q16. Press reports highlighted that an agreement to resolve the long-drawn valuation issue is in the works, in time to meet the Oct 6 deadline (next week).
“SPLASH’s current book value is RM2.8bil. We believe that the eventual offer price should be closer to, if not on par with, one time price to book value (P/BV). The last rejected offer was at 0.1 time P/BV,” it said.
