Gamuda sustained by RM13.5 billion orderbook, potential project revivals
KUCHING: When the news of the KL-Singapore High Speed Rail (HSR) cancellation broke, it was a bad development for Gamuda Bhd (Gamuda) as it meant the exclusion of MRCB-Gamuda consortium’s appointment as the project delivery partner (PDP) for the northern section of the HSR project –cancelling out RM6.6 billion from Gamuda’s orderbooks.
The bad news followed with the announce of the MRT3 cancellation of which the MMC Corp-GamudaGeorge Kent joint venture (JV) was a frontrunner for.
The cancellation of the two major infrastructure projects caused Gamuda’s share price to drop to a 5-year low of RM3.18 on May 31 as investors worried about whether the construction giant would be able to sustain itself with the loss of HSR PDP award and experience orderbook replenishment risk from the cancellation of MRT3.
To this, the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Capital) believes that the company is not in any dire situation at the moment as it will be able to sustain itself in the longer term thanks to its impressive remaining orderbook of RM13.5 billion which is expected to sustain construction activities over the next 3 years.
Besides that, AffinHwang Capital guided that there might be still hope for the MRT3 project in the future as Gamuda is angling to help revive it.
“Gamuda hopes to revive the MRT3 project, as the Circle Line will integrate the existing public rail services in Klang Valley. We gather that the estimated cost of RM45 billion for the project could be reduced to RM20 to 22 billion,” said the research arm.
Meanwhile, the proposed RM8 billion Penang LRT project may also be revived as AffinHwang Capital guided that Gamuda is planning to restart discussions on it.
To recap, the Gamuda led consortium of which Gamuda has a 60 per cent stake in remains as the PDP for the RM32 billion Penang Transport Master Plan (PTMP).
All in, AffinHwang Capital opined that Gamuda’s large orderbook will be able to sustain itself for the time being, but they also believe that the group will be facing challenges in replenishing its orderbook while its property projects continue to face weaker market conditions.
To reflect these concerns and lower valuations from its construction and property segments, the research arm is cutting its earnings per share by 3 to 12 per cent for FY18-20E; lowering their fully-diluted RNAV per share estimate to RM4.38 from RM4.90; and by applying a higher 20 per cent discount to RNAV from 10 per cent, slashing their target price to RM3.50 from RM4.42 previously.