Gamuda Bhd
(June 19, RM5)
Maintain buy with unchanged target price of RM6: Positive kickers for Gamuda are looming: (i) Penang Transport Master Plan’s (PTMP) project delivery partner (PDP) award, and (ii) the signing of the Klang Valley Mass Rapid Transit (KVMRT) 2 PDP agreement, that are both expected in June/July this year.

Gamuda could be one of the front runners for the PTMP PDP role, based on its experience as a co-PDP for KVMRT 1. Besides the PDP role, Gamuda is also eyeing PTMP’s civil construction works. 

As for the KVMRT 2, the likely positive outcomes from the final PDP agreement include: (i) the project value which could be higher than RM23 billion; and (ii) the PDP fees which could be maintained at 6%, similar to KVMRT 1.

Meanwhile, results for the third quarter of financial year 2015 ending July (3QFY15)  due on Tuesday, should be in line.

Clinching the PTMP PDP role and higher PTMP and KVMRT 2 project values could boost stock sentiment. The PTMP and KVMRT 2 works would level up Gamuda’s order book to a record high. We estimate potential job wins from PTMP and KVMRT 2 could be equivalent to 6.8 times its trailing construction annual revenue. This would give longer-term earnings visibility to Gamuda’s construction division.

There is no change to our earnings forecasts. We reiterate Gamuda as our top pick for the construction sector with an unchanged revalued net asset value-based target price of RM6. We think the implied valuation of our target price at 21 times 2016 price-earnings ratio, still below its 23 times one standard deviation above mean, is justified. — Maybank IB Research, June 19

This article first appeared in The Edge Financial Daily, on June 22, 2015.