Gamuda - More traction on MRT 2
Target RM5.99 (Stock Rating: ADD)
Gamuda announced that it has received a letter from MRT Corp appointing the MMC-Gamuda JV as project development partner (PDP) for MRT 2. This news is a big positive and solidifies Gamuda’s position as the biggest beneficiary of the project, with a stronger chance of bagging the underground works. Imputing the DCF value of the PDP agreement may raise our RNAV by 3-4% but we retain our numbers pending formalisation of the PDP terms in the next 3-4 months. Our RNAV-based target price remains pegged to a 10% discount. We expect the share price to continue its steady rerating on the back of this news and positive expectations for a recovery in the water takeover talks. Maintain Add. Gamuda remains our top sector pick for the big caps.
What Happened
Gamuda announced that it received a letter from MRT Corp appointing the MMC-Gamuda JV (50:50) as project development partner (PDP) for MRT line 2 (MRT 2: Sungai Buloh-Serdang-Putrajaya). “The terms and conditions of the PDP structure will be contained in an agreement which is to be negotiated and agreed,” the company said. A more thorough announcement will be made in due course.
What We Think
This news is in line with our expectations and management's guidance during the recent 4Q14 results briefing. It is a big positive as it solidifies Gamuda's position as the biggest beneficiary of MRT 2. If Gamuda is granted PDP fees of 6% for MRT 2 (similar to MRT 1), this translates to RM900m in total PDP fees derived from the estimated RM15bn value of above-ground works to be realised over a 4-5 year period. This news also raises Gamuda’s chances of bagging the estimated RM5bn underground/tunnelling works (50% JV share), which is likely to be up for tender in 2H15, and awarded thereafter. The finalised structure and terms of the PDP will be ironed out over the next 3-4 months, and we expect a more detailed announcement in 1Q15. Assuming similar PDP terms with MRT 1, the DCF value of the MRT 2 PDP could raise RNAV by 3-4%.
What You Should Do
Accumulate. The appointment of the PDP is one of the two key events for MRT 2 before the tender phase, with the other being the official Cabinet approval, expected in the short-term. The share price has recovered of late, up 4% after the overall market sell-down. We expect a continued steady rerating on the back of this news, and also positive expectations of renewed talks on the water takeover side, particularly after the new Selangor chief minister took office.
Target RM5.99 (Stock Rating: ADD)
Gamuda announced that it has received a letter from MRT Corp appointing the MMC-Gamuda JV as project development partner (PDP) for MRT 2. This news is a big positive and solidifies Gamuda’s position as the biggest beneficiary of the project, with a stronger chance of bagging the underground works. Imputing the DCF value of the PDP agreement may raise our RNAV by 3-4% but we retain our numbers pending formalisation of the PDP terms in the next 3-4 months. Our RNAV-based target price remains pegged to a 10% discount. We expect the share price to continue its steady rerating on the back of this news and positive expectations for a recovery in the water takeover talks. Maintain Add. Gamuda remains our top sector pick for the big caps.
What Happened
Gamuda announced that it received a letter from MRT Corp appointing the MMC-Gamuda JV (50:50) as project development partner (PDP) for MRT line 2 (MRT 2: Sungai Buloh-Serdang-Putrajaya). “The terms and conditions of the PDP structure will be contained in an agreement which is to be negotiated and agreed,” the company said. A more thorough announcement will be made in due course.
What We Think
This news is in line with our expectations and management's guidance during the recent 4Q14 results briefing. It is a big positive as it solidifies Gamuda's position as the biggest beneficiary of MRT 2. If Gamuda is granted PDP fees of 6% for MRT 2 (similar to MRT 1), this translates to RM900m in total PDP fees derived from the estimated RM15bn value of above-ground works to be realised over a 4-5 year period. This news also raises Gamuda’s chances of bagging the estimated RM5bn underground/tunnelling works (50% JV share), which is likely to be up for tender in 2H15, and awarded thereafter. The finalised structure and terms of the PDP will be ironed out over the next 3-4 months, and we expect a more detailed announcement in 1Q15. Assuming similar PDP terms with MRT 1, the DCF value of the MRT 2 PDP could raise RNAV by 3-4%.
What You Should Do
Accumulate. The appointment of the PDP is one of the two key events for MRT 2 before the tender phase, with the other being the official Cabinet approval, expected in the short-term. The share price has recovered of late, up 4% after the overall market sell-down. We expect a continued steady rerating on the back of this news, and also positive expectations of renewed talks on the water takeover side, particularly after the new Selangor chief minister took office.
