MMC, Gamuda shares fall in early session
KUALA LUMPUR: Shares of Gamuda Bhd (Gamuda) and MMC Corp Bhd (MMC) fell in trading yesterday on the back of the government’s decision to retender unfinished underground work of the Mass Transit Line 2 (MRT2) project through an international open tender process.
At closing, Gamuda lost 78 sen or 24.3 per cent to close at RM2.43 per share. More than 9292.1 million shares were traded. Meanwhile, MMC lost 22 sen or 16.3 per cent to close at RM1.13 per share, with more than 4.8 million shares exchanging hands.
Kenanga Research said the cancellation of projects would affect MMC’s earnings and as such the research firm was pessimistic on this news.
“We had expected more sizeable contributions from the engineering segment in financial year 2018-2019, with first half of 2018’s profit before tax for engineering to jump 79 per cent year-on-year to RM152 million, mainly driven by MRT contributions,” it said in a note today.
To-date, the group has completed 24 per cent for the elevated portion, and 33 per cent for the tunnelling portion, while this cancellation will affect the remaining contributions from this project, with Kenanga Research estimating the annual pre-tax profit at RM70 million to RM100 million.
Meanwhile, Maybank Kim Eng Research believed that the latest development would lead to the entire MRT2 construction completion to be delayed by at least half a year from its original estimation by mid-2022, due to the re-tendering exercise for the underground package.
“We think that MMC-Gamuda’s decision to walk away from the underground package is due to too significant a cost-down required by the government, to the extent that the risk-reward is no longer tenable.
“We are unsure if Gamuda will participate in the international tender to complete the remainder of this underground package,” it added.
On Sunday, the federal government announced via the Finance Ministry that they are terminating the MMC-Gamuda joint venture as the main contractor for the tunnelling works of MRT2. The joint venture was awarded the contract in 2016. For the remaining 70 per cent of the works, the government will call for an international tender to participate in the project.
Additionally, the aboveground portion of the MRT2 project is expected to be lowered by RM5.22 billion or 23 per cent of the original cost to RM17.42 billion through renegotiation with MMC-Gamuda JV, the project delivery partner.