Malaysia is still investing in infrastructure deemed catalytic to its development and Gamuda Bhd is expected to remain a prominent player in the sector. That is one reason why the company’s shares are worth at least RM5 apiece, many analysts — at least 18 — believe.
The most bullish is CIMB Research with a RM5.97 target price for Gamuda, which is its “top pick” for the sector. The engineering, property and infrastructure company has an order book of RM9 billion and is tendering for more jobs.
There are four “hold” and two “sell” calls on the counter, the most bearish of which is Nomura Research that has a target price of RM4.10 — significantly below the consensus target price of RM5.41. Those with “hold” calls value Gamuda at RM4.85 to RM5.10 a share, Bloomberg data show at the time of writing.
Investors who agree with the more bullish calls may consider Gamuda-WE, which has a RM4.05 strike price, one-for-one conversion ratio and only expires in March 2021. Closing at RM1.35 last Wednesday, the derivative fetched a 10.9% premium over the underlying securities that ended at RM4.87 on the same day.
If Gamuda can rise 22.6% to reach CIMB’s target price, Gamuda-WE should theoretically be worth 42% more at RM1.92, assuming zero premium to the mother share.
“We continue to like Gamuda for its earnings turnaround in FY2017 and exposure to large-scale rail projects,” CIMB writes in a Sept 29 note. “A downside risk is a delay in job rollouts but this is outweighed by the revival of job wins, sale of water assets and likely recovery in foreign shareholding, which is currently at a low of 22%,” it adds. (The water assets refer to Gamuda’s 40%-owned Syarikat Pengeluar Air Sungai Selangor Sdn Bhd [SPLASH], with a RM2.8 billion book value, which it is looking to divest to the Selangor government. The outcome was pending at the time of writing.)
Citing Gamuda’s management, CIMB says the company targets to secure RM3 billion to RM4 billion worth of infrastructure projects, which could come from the Light Rail Transit Line 3, subcontract works from the Gemas-Johor Baru double-tracking rail project and Pan Borneo Highway in Sabah. Gamuda also plans to tender for the civil works and possibly other parts of the RM30 billion to RM40 billion Kuala Lumpur-Singapore high-speed rail (HSR) project, which now has a “better tender visibility” of end-2017.
RHB Research Institute — which on Sept 29 upgraded Gamuda from “neutral” to “buy” with a higher target price of RM5.55 (from RM5.19) — also likes the company for its “prominent role in Malaysia’s infrastructure development” as it reckons that it “secures its future role in MRT3 (Mass Rapid Transit Line 3), Penang Transport Master Plan, and possibly HSR”.
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