Sunday, January 19, 2014

Gamuda - A Good Proxy To Malaysia’s Construction Play (UOBKH)

Gamuda (GAM MK)
Share Price RM4.61
Target Price RM5.43
A Good Proxy To Malaysia’s Construction Play

We recently met with Gamuda and understand that in the coming months, the company expects the formal approval of MRT Line 2 by the Cabinet. The project would likely need two years to be shovel-ready. Also, the company has secured 40% in acceptance for its KESAS offer, bringing its holding to 70%. Next year, we expect newsflow for the Gemas JB double tracking to gain momentum which we believe would favour Gamuda. Maintain BUY. Target price: RM5.43.


WHAT’S NEW
• Still packed with growth catalysts. In the following months, the company expects the formal approval of the Mass Rapid Transit (MRT) Line 2 by the cabinet. We also received updates relating to its recent purchase of the KESAS Expressway, potential contracts that the company may pursue and the resolvement of the Selangor Water Asset buyout by the State Government of Selangor.

STOCK IMPACT
• Look out for the formal cabinet approval of the RM25b MRT Line 2. In May 13, Gamuda unveiled the MRT Line 2 plans under the KL Transport Masterplan. MRT Line 2 (also known as the orbital line) will be about 56 km long, spanning from Sg Buloh to Putrajaya, and will have about 35 stations. The line has gone through feasibility tests and is awaiting official cabinet approval, said to come in 1H14. The government will then allocate about two years for the finalisation of public feedback, land acquisitions, design and tendering. We expect the contracts to be awarded by mid-15 and believe Gamuda can again champion the PDP role for MRT Line 2, which would enable it to earn a 6% PDP fee, or an estimate RM750m (50% stake). Given its role in MRT Line 1, Gamuda is also likely to secure the tunnelling packages for Line 2 as it would have significant cost advantage vs other players.

• In line to own 70% of KESAS. In Oct 13, Gamuda offered to acquire the remaining 70% stake it does not own in KESAS for RM875m, valuing the expressway at about RM1.25b. However, Gamuda secured only a 20% conditional acceptance from one of the concession owners, Amcorp Properties. Gamuda re-activated that offer after the expiry, offering about RM980m for the 70% stake. Gamuda then managed to get conditional acceptance of a 20% stake from Permodalan Nasional Bhd (PNB) for RM280m. However, the Selangor State Development Corporation (PKNS) who holds a 30% stake, still did not accept the offer.

• Financial and balance sheet impact after KESAS acquisition. The company expects the acquisition to complete by 2Q14. To date, Gamuda has received 40% of the 70% it offered for KESAS, which implies a total purchase consideration of about RM560m or 11.6x PE. Currently, Gamuda’s gearing stands at 0.13x, however, post-acquisition of the 40% stake, Gamuda’s net gearing could increase to 0.24x, which we believe is still manageable. Once the acquisition is completed, Gamuda’s earnings could potentially increase by 1.8%, 6.4% and 5.8% in FY14-16 respectively.

• The Gemas-Johor Bahru double tracking. During the tabling of Budget 2014, the government announced the implementation of the Gemas-JB double tracking worth about RM8b. We believe Gamuda stands the highest chance of winning this project, given it was the contractor for the RM12.5b Northern Double Tracking project. Most importantly, the transfer of labour, machineries, logistics and its track record stand as its advantages. Management expects newsflow for this project would begin rolling again in mid-15.

• SPLASH acquisition still hanging. Gamuda currently has a 40% stake in SPLASH. Earlier anticipated resolution of the Selangor water asset restructuring by end-13 did not happen. Recall that back in 1Q13, the Selangor state government offered to acquire SPLASH for RM1.8b plus an undisclosed settlement sum from Pengurusan Aset Air Bhd (PAAB), a unit under the Ministry of Finance. But the deal did not follow though as PNH, which owns 70% of Syabas, rejected the offer then. In Nov 13, the Selangor state government reactivated the offer for SPLASH for RM1.85b but the additional settlement sum from PAAB was missing, which resulted in SPLASH rejecting the offer.

• Property sales still going strong. As of Oct 13, Gamuda had raked in healthy sales of RM575m (52% from Horizon Hills in Johor). The company expects sales for its Horizon Hills development to remain strong, especially before the implementation of the minimum foreign purchase of RM1m in May 14. Also, healthy unbilled sales of RM1.7b will ensure earnings visibility for the next three years. Management is retaining its target of RM1.9b in sales for FY14, while projecting zero contribution from Vietnam for the next two years

EARNINGS REVISION/RISK
• We are maintaining our earnings forecasts. However, once the KESAS acquisition is completed, earnings for FY14-16 could be boosted by 1.8%, 6.4% and 5.8% respectively.

VALUATION/RECOMMENDATION
• Maintain BUY and target price of RM5.43, or 16.7x fully-diluted FY15F PE. We believe Gamuda’s prospects remain bright, given key catalysts such as the potential sale of some of its water assets and clinching the Southern Double Tracking project. Also, in the medium term, Gamuda could again be the PDP and prospective winner of the underground tunnelling works for MRT Line 2.

SHARE PRICE CATALYST
• Official cabinet approval of MRT Line 2.
• Award of the Gemas-JB double tracking contract estimated to worth up to RM8b.
• Better-than-expected property sales in Malaysia and Vietnam.
• Disposal of its water concession assets.



Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 09/01/14

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