This article first appeared in The Edge Financial Daily on April 9, 2018 - April 15, 2018
Gamuda Bhd
(April 6, RM5.09)
Maintain outperform with an unchanged target price (TP) of RM6.20: MyHSR Corp Sdn Bhd via its press releases indicated that it had appointed the Malaysian Resources Corp Bhd – Gamuda Bhd consortium (MRCB Gamuda Consortium) and Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd - TH Properties Sdn Bhd consortium (YTL-THP) as its project delivery partners (PDP) for the Kuala Lumpur–Singapore High Speed Rail (HSR) portion of civil works. Although no disclosure was made on the PDP fee, we believe that it should be at around 6%, similar to the PDP fee for the earlier mass rapid transit (MRT) projects. Civil works for the project are believed to be valued as high as RM40 billion.
We understand that the MRCB-Gamuda Consortium has been selected for the northern portion of the alignment, while YTL-THP has been selected for the southern portion and the contracts will be awarded upon the conclusion of negotiations between MyHSR Corp and the PDPs.
Assuming the MRCB Gamuda Consortium gets 50% of the total works with 6% PDP fees, we estimate that Gamuda’s profit before tax (PBT) to be around RM1.2 billion. Pending more clarification, earnings estimates are kept unchanged for now.
We still like Gamuda and expect earnings to pick up from FY18 onwards and to continue benefiting from the large infrastructure projects that are being rolled out over the next two to three years.
To recap, there are eight stations currently planned for the HSR, namely Bandar Malaysia, Sepang-Putrajaya, Seremban, Melaka, Muar, Batu Pahat and Iskandar Puteri stations in Malaysia and the Jurong East station in Singapore.
The proposed project aims to facilitate a 90-minute travel time between Kuala Lumpur and Singapore and is expected to commence operations by Dec 31, 2026. We understand that the scope of works for the PDP, among others, include designing and delivering the civil works for the Kuala Lumpur-Singapore HSR project at an agreed cost and schedule.
The PDP shall carry out all necessary activities throughout the planning, construction, testing, and commissioning phases, among others.
We understand that Klang Valley Mass Rapid Transit 3 (KVMRT3), which has a contract value of RM45 billion, could be awarded soon. — Public Investment Research, April 6