Gamuda, MMC shares rise on MoF nod to continue MRT2 underground portion

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KUALA LUMPUR (Oct 26): Shares of Gamuda Bhd and MMC Corp Bhd rose to their highest level in two weeks, after it was announced that their joint-venture firm will remain as the contractor for the underground portion of the Sungai Buloh-Serdang-Putrajaya MRT line (MRT2) project.

At 4.31pm, Gamuda shares were up 19 sen or 8.19% at RM2.51. The counter was the second most active, with 58.07 million shares traded.

MMC was up five sen or 4.46% at RM1.17, with 2.61 million shares traded.

The Ministry of Finance, in a statement, said MMC-Gamuda KVMRT (T) Sdn Bhd will remain as the contractor for the underground portion of the MRT2 project.

It said the Cabinet today accepted the consortium's revised proposal to cut costs further by 21.5% or RM3.6 billion (as against a reduction of RM2.13 billion offered previously) to RM13.11 billion for the portion.

Two proposed stations in Bandar Malaysia have now been removed, cutting the total number of stations for the MRT2 line to 33 from 35.

Earlier this month, MMC-Gamuda agreed to cut costs for the above-ground portion of the MRT2 project by RM5.22 billion or 23% to RM17.42 billion.

The reduction means that the construction costs of MRT2 has been reduced by RM8.82 billion or 22.4% to RM30.53 billion, from RM39.35 billion previously.

AmInvestment Research analyst Joshua Ng in a note today maintained a 'hold' call for Gamuda with fair value maintained at RM2.71.

"We are positive on the latest development by virtue of the belief that MMC-Gamuda has 'made amends' with the government.

"Recall, we said that Corporate Malaysia [has] increasingly had to learn that apart from maximising profits for their shareholders, it is equally important to maintain a cordial working relationship with the government, as well as to deliver goods and services to the rakyat in the best possible value-for-money way," Ng said.

"However, the reduction means MMC-Gamuda will have to carry out the 60% remaining work with an original contract value of RM9.6 billion at RM6 billion, representing a whopping 37.5% cut effectively," he added.

Despite removing the two Bandar Malaysia stations, it is doubtful that MMC-Gamuda will be able to turn in any meaningful profits from the remaining work at this price, Ng said.