Gamuda to benefit from Penang LRT deal win

PETALING JAYA: Analysts are positive on the award of the first segment of the Penang Light Rail Transit (LRT) Mutiara Line contract to Gamuda Bhd’s 60%-owned SRS Consortium.

The project will be split into three components, comprising Segment 1 civil work for Silicon Island–Komtar, Segment 2 civil work for Komtar-Penang Sentral, and the turnkey system and rolling stock contract.

“We are highly 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,” Kenanga Research said.

While the terms and value are to be negotiated with MRT Corp, which is the project developer and asset owner, within the next six months, the research house estimated Gamuda’s share of civil work to be worth RM4.6bil-RM5bil, which is still within its financial year ending July 31, 2024 (FY24) job-win assumption.

“Recall, a price tag of RM10bil was mentioned in Budget 2024 for the Penang LRT project. Assuming RM320mil to RM350mil per km for civil works, the 24km Segment 1 of the LRT project would be worth about RM7.6bil to RM8.4bil, translating to RM4.6bil to RM5bil for Gamuda’s 60% portion of the job.

“With this, Gamuda’s year-to-date contract wins have increased by 66% to 74% from RM6.8bil (three major job wins) to RM11.3bil-RM11.8bil against our FY24 job replenishment assumption of RM12.5bil,” Kenanga Research added.

It has maintained its forecasts and target price (TP) of RM6.20 and “outperform” call on the builder.

Meanwhile, RHB Research believes that the total construction cost for Segment 1 would be in the range of RM8bil to RM10bil with a pre-tax profit margin of 5%-8%.

“While there was no mention of the Komtar to Tanjung Bungah line under the approved Penang LRT alignment, Penang Chief Minister Chow Kon Yeow expressed hope that it will be considered in the future phase of the project,” the research house added.According to RHB Research, the contract for Segment 1 is based on the single sourcing request for proposal mechanism, likely implying a turnkey-contractor role, which assumes higher accountability in bearing cost overruns and financing for SRS.

This is versus a project delivery partner role where they will be paid with fees for ensuring a project is delivered on time and within budget.

“Nonetheless, Gamuda is very well experienced in handling big-ticket projects and therefore, we see no major concern in managing project margins should Segment 1 be under a turnkey basis,” the research house added.

It said the contracts for Segment 2 and 3 of the Penang LRT will be done via open tenders, which SRS will still be able to submit bids for, giving Gamuda further opportunity to expand its outstanding orderbook of RM24bil as of end-January.

RHB Research has kept its “buy” call on the company with a TP of RM6.30.

“Our ‘buy’ call is premised on its current valuation, trading at 13.9 times FY25 price earnings ratio (PE) which we view as unjustified.

Gamuda was trading at a 16 times PE mid-2017 during the construction upcycle when its orderbook was only at RM7.8bil compared with RM24bil now,” the research house added.