The federal government has finally approved the Penang LRT project and awarded GAMUDA’s 60%-owned SRS Consortium the Segment 1 civil work of the project. We estimate GAMUDA’s share of civil work to be worth RM4.6b to RM5.0b, which is still within our FY24 job win assumption. We therefore maintain our forecasts, TP of RM6.20 and OUTPERFORM call.

The Transport Minister announced last Friday that the federal government had approved the Penang LRT project, now known as the Mutiara LRT Line, to come under the purview of MRT Corp. The project will be split into three components:- (i) Segment 1 civil work – Silicon Island – Komtar, (ii) Segment 2 civil work – Komtar-Penang Sentral, and (iii) turnkey system and rolling stock contract. The project is expected to kick start this year and to be completed by 2030.

GAMUDA’s 60%-owned SRS Consortium Sdn Bhd (SRS) has been awarded the Segment 1 of the Penang LRT project with the terms and value to be negotiated with MRT Corp within the next six months.

Meanwhile, Segment 2 and the turnkey contract for systems and rolling stocks on a “build-maintain-transfer” basis will be awarded via open tenders along the way.

We are highly positive on the latest development. While the award of Segment 1 to SRS has been widely expected by the market, this award has erased the concern over further delays of the project. Recall, a price tag of RM10b is mentioned in Budget 2024 for the Penang LRT project. Assuming RM320m-RM350m per km for civil works, the c.24km segment 1 LRT project would be worth about RM7.6b-RM8.4b, translating to RM4.6b-5.0b for GAMUDA’s 60% portion of the job. With this, GAMUDA’s YTD contract wins have increased by 66% to 74% from RM6.8b (three major job wins) to RM11.3b to RM11.8b against our FY24 job replenishment assumption of RM12.5b.

Forecasts. Maintained.

Valuations. We maintain our SoP-based TP of RM6.20 (see Page 2) that values its construction business at 18x FY25F PER and includes a 5% premium given its 4-star ESG rating as appraised by us (see Pages 5).

We continue to like GAMUDA for: (i) being the front-runner for the tunnelling job for the MRT3, (ii) its ability to secure new jobs in overseas markets, (iii) its strong war chest after the disposal of its toll highways, (iv) its strong earnings visibility underpinned by a record outstanding order book of RM26.1b (excluding Penang LRT project), and (v) its inroads into the renewable energy space. Maintain OUTPERFORM.

Risks to our call include: (i) the delays in the roll-out of key public infrastructure projects in Malaysia such as the MRT3, (ii) rising input costs and labour shortage, (iii) risks associated with operations in overseas markets such as the change in government policies towards foreign businesses and forex, and (iv) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 1 Apr 2024