Gamuda upbeat over high-speed rail project

PETALING JAYA: Gamuda Bhd believes its joint venture (JV) with Malaysian Resources Corp Bhd (MRCB) has a technical advantage over the consortium formed by IJM Corp Bhd, Sunway Construction Sdn Bhd, Maltimur Resources Sdn Bhd and Jalinan Rejang Sdn Bhd for the KL-Singapore HSR project.
Maltimur Resources and Jalinan Rejang are controlling shareholders of Lebuhraya Utara Sdn Bhd (LBU), the PDP appointed for the Pan Borneo Sarawak Highway.
At an analyst briefing last Friday, Gamuda said its JV with MRCB has a strong track record as project delivery partner (PDP) for rail projects such as the MRT1 and MRT2 for Gamuda and the LRT3 for MRCB, while the IJM-Sunway-LBU JV’s PDP track record is in road projects including the West Coast Expressway for IJM and the Pan Borneo Sarawak Highway for LBU.
AmResearch said it will not be surprised if YTL Corp decides to join the fray in the bidding for the KL-Singapore HSR PDP role given that it was the one who first mooted the project back in the 1990s.
However, Gamuda doubts that its competitors will undercut the PDP fee (vs the current benchmark of 6%) given the much higher risks of execution, cost overrun and liquidated and ascertained damages arising from late delivery for the HSR project.
AmResearch has also reiterated its “buy” call on Gamuda with a fair value of RM5.95.
Meanwhile, PublicInvest Research came away positive on Gamuda’s job prospects despite recent setback in MRT3 project, which is now foreign-financed using the design, finance, build model from the PDP model in the previous two phases.
“That said, the group is still eyeing sub-contracting roles which could be substantial as well, with about 40-50% of MRT3’s contract value allocated for local contractors.”
Tenders are to be called soon with outcome likely in mid-2018.
With three mega-rail projects estimated at a combined value of RM150 billion to be implemented from 2018 to 2025, Gamuda is expected to bid for all three projects, with jobs replenished said to be around RM6 billion to RM8 billion per annum.
PublicInvest is maintaining an “outperform” call on Gamuda with an unchanged target price of RM6.20.
“We still like Gamuda and expect earnings to pick up pace from FY18 and to continue to benefit from the large infrastructure projects expected to be rolled out over the next two to three years.”
AmResearch continues to like Gamuda given its market leader position in the local construction market backed by its tunnelling expertise and track record as PDP in rail projects; its resilient property profits underpinned by overseas projects and local township projects that are well received by the market; and its recurring earnings from toll road and water concessions.
Gamuda’s share price closed five sen higher at RM4.8 with some 4.3 million shares done.