Monday, April 30, 2012

Gamuda ... Apr12

Alliance Research ...

It was announced that the MMC-Gamuda JV had been officially awarded the RM8.28bn tunnelling works for the MRT SBK line. Our forecasts have already factored in the job and we leave our earnings unchanged. We believe that this award puts the JV in a stronger position for the tunnelling works of the remaining 2 lines. In our view, the market has under-appreciated Gamuda’s tunnelling job win as its share price has underperformed the FBMKLCI by 4.4% since news of the MRT first broke out in mid-2010. Maintain BUY with unchanged TP of RM4.77.

What’s in the news
 Last Friday, it was announced on Bursa that the MMC-Gamuda JV had been officially awarded the tunnelling works for the MRT SBK line worth RM8.28bn.

 The contract involves the construction of tunnels with a length of 9.5km (Semantan North Portal to Maluri South Portal) and 7 underground stations.

Our comments
 This announcement does not come in as a surprise to us as MRT Corp had last month highlighted that the tunnelling works would be awarded to the JV.

 Our forecasts have already imputed RM8.2bn (RM4.1bn as Gamuda’s 50% share) worth of tunnelling works. To be prudent, we have assumed that works (and profit recognition) for the tunnelling works will only commence in FY13 (July). In terms of margins, we have assumed 18-20% at the gross level. Management had previously guided for PBT margins of 12%.

 With the JV bagging the SBK line tunnelling works, we believe this puts it in a good position to win the tunnelling packages for the Circle Line and North-South Line once it commences. The JV will be purchasing 10 tunnel boring machines (TBMs) costing EUR40-50m each bringing to total cost to RM1.6-2bn. As the TBMs can be used for the subsequent underground lines, this should put the JV in a better position to submit more competitive tenders.

 Aside the remaining 2 lines of the MRT, other potential jobs in the pipeline include the Southern Double Track (Gemas-JB) and Langat 2 water treatment plant. We expect to see some development on these jobs in 2H of the year.

Valuation and recommendation
 We make no changes to our estimates as the project has already been imputed. We feel that the market has under-appreciated the JV’s win of the tunnelling works. Since news on the MRT first broke out in mid-2010, Gamuda’s share price has surprisingly underperformed the KLCI by -4.4%.

 Gamuda’s currently trades at FY12-13 P/E of 13.8x and 12.8x respectively. This represents a steep discount to its long term 1-year forward P/E mean of 23.9x. We feel that too much “election risk” has been (irrationally) priced in.

 Maintain BUY with unchanged RM4.77 TP based on sum of parts valuation. Our TP implies FY12-13 P/E of 18.5x and 17.1x respectively.

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