This article first appeared in The Edge Financial Daily on July 25, 2018

Gamuda Bhd
(July 24, RM3.85)
Maintain buy with a target price of RM4.49: We expect the RM32 billion Penang Transport Masterplan Plan (PTMP) to get Putrajaya’s nod soon following a recent newsflow. The Penang government indicated that it will consider requesting for a RM1 billion soft loan from the federal government to expedite the implementation of PTMP, which includes developing the light rail transit and Pan Island Link 1 (highway) projects simultaneously, subject to approval from relevant authorities which is expected as early as the end of the year. In addition, the state government highlighted that the loan proceeds would be used as a bridging loan to carry out the PTMP project while it plans to sell land to the project delivery partners (PDP) at a later date as the state believes the reclaimed land’s valuation will increase over time.

On a brighter note, we believe construction work for the PTMP will commence as early as mid-2019 and will keep the SRS Consortium (Gamuda Bhd owns 60%) busy for the next six to 10 years until the completion of the entire project. Through this PTMP project rollout, we estimate the sum-of-parts valuation for Gamuda will be enhanced by 13 sen per share, assuming PDP fees of 5%. Gamuda can tender for contract work of the PTMP projects even if it is the PDP for the project. Its bids will be subjected to assessment by independent parties other than the SRS consortium. Meanwhile, it is too preliminary to ascertain the earnings impact from the construction work (assuming Gamuda wins any of the PTMP construction job packages) as details of the projects have yet to be finalised.

Syarikat Pengeluar Air Sungai Selangor’s (SPLASH) woes are expected to be over soon after recent news highlighted the process of the takeover is 80% completed and should complete by early August, 2018. Gamuda, which owns 40% of SPLASH, is expected to benefit from the disposal which is worth an estimated RM1.2 billion based on Gamuda’s stake. The company guided that the cash proceeds from the disposal will be partially distributed to shareholders and for working capital. Gamuda’s stake in SPLASH is worth 50 sen per share. — UOB Kay Hian, July 24