KUALA LUMPUR - RHB Investment Bank Bhd (RHBIB) has maintained a 'buy' call on Gamuda Bhd following the contract offer to Gamuda's 60 per cent-owned subsidiary, SRS Consortium Sdn Bhd for the Penang Light Rail Transit (LRT) Mutiara which has been approved by the Cabinet on March 22.
SRS has been offered the contract for Segment 1 based on the Single Sourcing Request For Proposal (SSRFP) mechanism following a request by the Penang government, which appointed SRS as the project delivery partner (PDP) of the Penang Transportation Master Plan (PTMP) which includes the Penang LRT through an open tender in August 2015.
The contract details would however be finalised subject to negotiations between SRS and MRT Corp within a period of up to six months before works could begin in the third quarter of calendar year 2024 (3Q 2024) or 4Q 2024.
"We view that the total construction cost for Segment 1 would be in the range of RM8 billion to RM10 billion with a profit before tax (PBT) margin of five to eight per cent.
"While there was no mention of the Komtar to Tanjung Bungah line under the approved Penang LRT alignment, Penang Chief Minister Chow Kon Yeow has expressed hope that it will be considered in the future phase of the project," said RHBIB in a research note today.
Meanwhile, the contracts for Segment 2 and 3 of the Penang LRT would be done via open tenders to which SRS would still be able to submit bids.
Therefore, this may allow the possibility of further order book expansion from Gamuda’s RM24 billion total outstanding order book as of end-January, it said.
RHBIB also maintained a target price (TP) for Gamuda at RM6.30 per share.
Key risk to its call includes slower-than-expected job replenishment from overseas.
Another research firm Kenanga Research, meanwhile, estimated that Gamuda's share of civil work to be worth RM4.6 billion to RM5 billion, which is still within its financial year 2024 (FY2024) job win assumption for Gamuda.
"We are 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," said Kenanga Research.
The research firm which maintained an 'outperform' call on Gamuda with a TP of RM6.20 per share, said it continues to like the company for being the front-runner for the tunnelling job for the MRT3; its ability to secure new jobs in overseas markets; its strong war chest after the disposal of its toll highways; its strong earnings visibility underpinned by a record outstanding order book of RM26.1 billion (excluding the Penang LRT project); and its inroads into the renewable energy space.
Risks to its call include delays in roll-out of projects such as the MRT3, rising input costs and labour shortage, risks associated with operations in overseas markets such as the change in government policies towards foreign businesses and forex, and liquidated ascertained damages (LAD) from cost overrun and delays.
As at 10.29am, Gamuda's share price was 5.0 sen lower at RM5.22 with 1.66 million shares traded. - BERNAMA