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RHB Research maintains Underperform on Gamuda

KUALA LUMPUR: RHB Research Institute is maintaining its Underperform on Gamuda Bhd as its rich valuations have more than priced in the infrastructure company’s earnings buffer from its RM7.5 billion outstanding construction orderbook.

“Indicative fair value is RM2.12 based on 14x CY10 EPS of 15.1sen, in line with our benchmark 1 year forward target PER for the construction sector of 10 times to 14 times,” it said on Thursday, March 11.

On Wednesday, Gamuda announced it was acquiring a 60% stake in Tan Thang Company (Tan Thang) from Sai Gon Thuong Tin Real Estate Joint Stock Company (Sacomreal) for US$82.8 million (RM273 million).

Tan Thang holds the development rights for a piece of land measuring 204 acres at Son Ky Ward, Tan Phu District, Ho Chi Minh City. Tan Thong has secured the key approvals from the authority to develop the land into a township with a total gross development value of RM6 billion over seven years.

“Having adjusted for an efficiency (sellable ratio) of 48%, the effective land cost is US$350 per sq metre that is at a premium to the going rate of US$250 to US$300 per sq metre in the area. However, the premium is justifiable by virtue of a higher-than-average plot ratio the land will command,” it said.

RHB Research said Gamuda was getting a much better deal as compared with Yenso Park as Gamuda only signed on the dotted line on Wednesday (about a year since it first started working on the deal), after key approvals for the project from the authority were secured.

Under the deal, Sacomreal, the vendor of the 60% stake in the venture (who remains a 30% minority shareholder), will plough back US$66.2 million (equivalent to 80% of Gamuda’s consideration for the 60% stake) as “shareholders loan” to the venture for working capital.

“We are positive on the latest development but we do not believe it is the re-rating catalyst the market is looking for. We believe investors still want to first see the ‘first oil’ from Gamuda’s investment in Vietnam, that has so far still been elusive,” it said.

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