Gamuda Bhd
(March 15, RM5)
Maintain buy with a target price (TP) of RM5.86. We believe the civil works for the RM45 billion mass rapid transit Line 3 (MRT3) project is likely to be shared between the  Gamuda Bhd-George Kent-MMC Corp (GGM) consortium and China Communications Construction Co Ltd (CCCC).

 
The MRT3 contract is expected to be awarded by April 2018. At this juncture, the value of the contract works to be awarded to each party is uncertain. Gamuda’s equity stake and share of works within the GGM consortium is also not disclosed.

Assuming GGM wins 50% of the contract value and Gamuda’s share is 40% to 50% in the consortium, the MRT3 project could lift Gamuda’s order book by RM9 billion to RM11.3 billion.

This is above management’s 2018 new contracts target of RM6 billion to RM8 billion and still within our earnings forecast assumption of RM15 billion of new contracts in financial year 2018 (FY18) to FY19 estimates (FY19E), and would lift its current construction order book from RM14.1 billion (RM7.3 billion civil works and RM6.8 billion project delivery partner [PDP] works).

We gather that the PDP contract for Kuala Lumpur-Singapore High Speed Rail (HSR) infrastructure works in Malaysia could be split into two sections: Johor and the non-Johor portion linking to Kuala Lumpur. The Johor portion could go to the YTL Corp-SIPP joint venture (JV), while the non-Johor portion will likely see stiff competition between two local consortiums, that is the IJM Corp-Sunway Construction-Jalinan RejangMaltimur Resources JV and the Gamuda-MRCB JV.

The estimated project value is RM35 billion to RM40 billion and the contract award is expected in mid-2018. Assuming the Gamuda-MRCB JV wins 50% of the PDP contract and Gamuda’s share of the work is 50%, the HSR project would lift its order book by RM8.8 billion to RM10 billion.

We reiterate our “buy” call with an revalued net asset value-based 12-month TP of RM5.86. Gamuda remains our top pick among the large-cap construction stocks as we see it as a proxy for the massive infrastructure spending plan in Malaysia. Key downside risk  is further delays in securing new contracts. — Affin Hwang Capital Research, March 15