Taiwan job shows Gamuda’s ability to get overseas infrastructure work

This article first appeared in The Edge Financial Daily, on April 1, 2019.
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Gamuda Bhd
(March 29, RM2.88)
Maintain hold with an unchanged target price (TP) of RM2.70:
Gamuda announced that its joint venture (JV) with Taiwanese construction company Dong-Pi Construction Co Ltd had secured a construction contract for a marine bridge project from CPC Corp Taiwan, a state-owned petroleum, natural gas and gasoline company.

The work will be undertaken by an unincorporated JV comprising Gamuda (70%) and Dong-Pi (30%).

It involves the construction of a 1.23km marine bridge connecting a receiving terminal to a man-made island, comprising a 946m by 21.5m box girder and 284m road embankment. It also includes soil investigation, foundation, temporary bridge and working platform, coupled with environmental protection works.

The contract sum is 3,954,610,508 new Taiwan dollar (about RM521.71 million). The contract period is 44 months from April 2019 and is expected to be completed by November 2022.

Gamuda’s share of the contract is RM365.19 million based on the JV arrangement. Assuming a net profit margin of 7%, the contract is expected to contribute RM25.56 million to the group’s bottom line spanning across its contract period.

After taking account the newly secured order book of RM365 million, the outstanding order book stands at RM10.86 billion which comprises RM9.2 billion Klang Valley Mass Rapid Transit Line 2 (KVMRT2), RM500 million Pan Borneo Sarawak and RM800 million worth of building works.

We are positive on the new contracts as they show that the group is capable of securing overseas infrastructure construction works.

We keep our earnings forecasts for financial years 2019 (FY19) and 2020 (FY20) unchanged as the work recognition would be insignificant in the initial stages as there are only four months remaining in FY19. The work falls under our order book replenishment assumption for FY20.

Following the recent share rally, we opine that the TP of RM2.70 is fairly valued as it implies a 12.5 times FY19 forecast price earnings. — JF Apex Securities, March 29