Potential new contracts of RM3bil to RM4bil could lift Gamuda's earnings

KUALA LUMPUR: Affin Hwang Capital Research has retained Gamuda as its top Buy among the large-capitalised construction stocks with realised net asset value based target price of RM5.70.

It said on Monday it took Gamuda for a roadshow in United Kingdom where it met 10 foreign investment firms. Most were not shareholders and wanted an update on the construction sector and Gamuda.

“This explains Gamuda’s current low foreign shareholding of 22%, less than half of its historical peak of over 50%. Some investors liked the good prospects for the company given its record order book improving earnings visibility.

Affin Hwang Research said some were concerned with its RM27bil Penang Transport Master Plan (PTMP) project.

There were also some concerns on Malaysia’s political and macroeconomic environment but most agree on the good prospects for Gamuda.

“Potential new contracts of RM3bil to RM4bil could lift earnings,” it said.

Gamuda is optimistic in growing its current construction order book of RM8.2bil and Project Delivery Partner (PDP) contract with estimated value of RM8.6bil.

The company has submitted tenders for the Pan-Borneo Highway (Sarawak section) packages that could generate RM1bil in construction works if secured.

The research house said Gamuda is negotiating for a subcontract package potentially worth over RM1bil from the Chinese consortium awarded the Southern Double Tracking (SDT) project.

The company is also looking to bid for civil work packages potentially worth about RM1bn for the Light Rail Transit Line 3 (LRT3) project as it is one of the pre-qualified contractors. These projects if secured will potentially lift its order book by RM3bil to RM4bil.

“Gamuda has submitted its PTMP public transportation plan for approval by the Land Public Transport Commission (SPAD) and is submitting the detailed environmental study for the Department of Environment’s approval by end-2016.

“It is still uncertain if the project will proceed as it is subject to approval by the federal government authorities. Gamuda does not intend to issue new equity to fund the PTMP project, assuming it is able to dispose of its 40% stake in SPLASH at book value of about RM1.2bil.

“It is prepared to gear up to 0.8 times (from net gearing of 0.53 times currently) to fund the infrastructure and reclamation works for the PTMP and only retain a portion of the reclaimed land under the land swap agreement.

"The high investment cost for PTMP is a concern to some of the investors we met,” said Affin Hwang Research.