This article first appeared in The Edge Financial Daily, on April 1, 2016.

KUALA LUMPUR: A joint venture between MMC Corp Bhd and Gamuda Bhd has won the largest contract for the construction of the mass rapid transit (MRT) Sungai Buloh-Serdang-Putrajaya (SSP) Line (MRT2). This is for an underground works package worth RM15.47 billion.

Investors reacted positively to the news, pushing the share prices of both engineering and construction giants higher yesterday.

MMC was among the top gainers on Bursa  Malaysia, rising eight sen or 3.8% to a three-month high of RM2.19, with over three million shares done. Its market capitalisation stood at RM6.3 billion.

The current price represents an 82 sen or 27.4% discount to the consensus target price (TP) of RM3.01. Analysts are bullish on the stock with all seven research firms tracking the stock rating it as “buy”.

In a recent note, MIDF Research reiterated its “buy” call with an unchanged TP of RM3.05 on the listing of MMC’s port assets as well as healthy order book replenishment from the MRT2 project.

Meanwhile, Gamuda shares gained as much as six sen or 1.22% to RM4.94 before finishing the day at RM4.92, for a gain of four sen or 0.82%. More than 14 million shares changed hands. The closing price is 35 sen or 6.6% lower than the consensus TP of RM5.27.

In a note to clients on March 25, JP Morgan said Gamuda was its top construction sector pick over the longer term and it remained overweight on the stock.

“Gamuda is a key beneficiary of the government’s RM189 billion rail-related infrastructure spending, given its superior heavy engineering skill set and large-scale project interface capabilities,” it said.

According to Macquarie Research, Gamuda’s outstanding order book currently stands at RM600 million and estimates it to grow by at least 10 times with the award of the SSP Line underground package.

The award of the underground works package to MMC Gamuda KVMRT (T) Sdn Bhd (MGKT) was announced by Mass Rapid Transit Corp Sdn Bhd (MRT Corp) in a statement yesterday.

MRT Corp said the contract covers the design, construction and completion of tunnels, underground stations and associated structures, such as portals and escape shafts for the SSP Line’s 13.5km underground alignment from the Jalan Ipoh North Escape Shaft to the Desa Waterpark South Portal.

“The successful contractor for the underground works package had a proven track record in carrying out tunnelling and other underground works in the challenging geology of the Klang Valley,” said MRT Corp chief executive officer Datuk Seri Shahril Mokhtar.

“For this tender, I can reveal that the best evaluated tender had the best score for the technical evaluation and also had the lowest price,” he added.

MGKT edged out four other companies shortlisted for the contract. They were China Railway Group Ltd (CREC), China Communications Construction Co Ltd (CCCC), Taisei Corp and Hyundai Engineering and Construction Co Ltd. However, only MGKT, CREC and CCCC submitted the tenders.

This is the third major civil and infrastructure works package to be awarded for the MRT2.

The first, worth RM1.44 billion, was awarded to Ahmad Zaki Sdn Bhd for the construction of the viaduct guideway and other associated works for a 4.5km elevated guideway from Persiaran Dagang, Bandar Sri Damansara to Jinjang.

Earlier this week, Sunway Construction Sdn Bhd won a RM1.21 billion contract for similar work on a 4.9km stretch from Sungai Buloh to Persiaran Dagang.

The MRT2 is 52.2km long, of which 13.5km will run underground. It will have 37 stations, with 11 of them being underground.