Gamuda Bhd (June 28, RM5.48)

Maintain buy with a higher target price of RM6.24: Gamuda Bhd’s earnings upcycle is poised to hit another round of multi-year highs in the financial year ending July 31, 2018 (FY18) and FY19. It is also a key play to ride on the upcoming mega rail projects such as the light rail transit (LRT) line 3, East Coast Rail Link and High-Speed Rail.

Mass rapid transit Sungai Buloh-Kajang line (MRT1) has been completed and will commence full operations in mid-July.

For MRT2 (Sungai Buloh-Serdang-Putrajaya line), 90% of the awards totalling RM29 billion have been dished out.

Progress rate on MRT2 is at 6% with mostly preliminary works being undertaken (such as utilities relocation, earthworks, foundations, excavation, ground treatment, retaining walls).

Project details on MRT3 (circle line) is currently being finalised by the Land Public Transport Commission. Cabinet approval is anticipated by mid-2018 with project rollout in early-2019. The circle line will integrate with other radial lines from the MRT, LRT, Monorail and KTM via its orbital alignment, commonly known as the “wheel and spokes” concept. As it will pass through densely populated areas with high buildings, a large portion of its alignment will be underground.  This plays in Gamuda’s favour as it can undertake a higher degree of underground works given its experience with MRT1 and MRT2. Media reports have stated that MRT3 could span 45km to 48km in length and cost RM50 billion.

Property sales in the third quarter ended April 30, 2017 amounted to RM620 million, bringing the year-to-date sum to RM1.4 billion. This marks a strong recovery compared with RM575 million in the same period last year. The Kundang township has been launched while Gamuda Gardens and Twentyfive.7 will be launched within this year. Unbilled sales stand at RM2 billion, implying a cover ratio of 1.8 times on FY16 total property revenue. — Hong Leong Investment Bank Research, June 28

This article first appeared in The Edge Financial Daily, on June 29, 2017.

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