Gamuda Bhd (Gamuda) remains confident of clinching the project delivery partner (PDP) role for the KVMRT 2 project despite speculation that the Gemas-Johor Baru double track rail construction award has been further delayed to 2015 from late-2014.
Maybank Investment Bank Bhd (Maybank Research) noted that smooth progress of the KVMRT 1 construction and strong property sales would continue to underpin Gamuda’s earnings growth. The risk of the invocation of S114 could induce short-term negative sentiment on the stock although the impact on the water asset sales is not certain yet.
“We take the view that the issue will be resolved amicably,” it stated.
The government’s final go-ahead for the KVMRT 2 and appointment of its PDP is expected to be announced in the first quarter 2014 (1Q14). Gamuda-MMC is confident of clinching the PDP role, riding on their track record in managing the KVMRT 1 construction.
Post formal approval, land acquisitions, public feedbacks, tendering and job awards could take another year plus before the physical construction starts in 2016.
“Gamuda’s construction division would focus on the KVMRT project only in 2014 as the government’s award of the Gemas-Johor Baru double track rail works looks likely to be postponed to 2015. Meanwhile, the government is in the midst of finalising the Langat 2 water treatment plant project award, but Gamuda thinks it is not the frontrunner for the works,” the research house highlighted.
Maybank Research also explained that the company’s property sales remain robust driven by Horizon Hills at Iskandar Malaysia as foreigners buy ahead of the proposed implementation of the RM1m floor price on May 1, 2014.
Gamuda has achieved RM575 million property sales for its Malaysian projects in 1QFY7/14. It could potentially beat its FY14 property sales target of RM1.9 billion. Elsewhere, Gamuda is targeting to finalise three land bank acquisitions in 2014 in the Klang Valley, Iskandar Malaysia and Kota Kinabalu (KK). It has budgeted RM1.5 billion for the acquisitions.
The KK and Iskandar project would be undertaken via joint ventures (JVs) and hence they would be less in capital start-ups for Gamuda. These potential land banks could lift Gamuda’s total domestic property GDV by RM8 billion to RM21.7 billion.
Gamuda has also bidded for Kwasa’s Rubber Research Institute land development; it is shortlisted as a Tier 1 developer. These would fortify its property division long term earnings visibility and growth.
The acquisition of an additional 40 per cent stake in the Kesas Highway concession is expected to be completed by end-Mar 2014. This could positively provide a 2.4 per cent or 6.8 per cent lift to the financial year 2014 (FY14) to FY15 earnings forecasts for Gamuda.
As for the potential takeover of KTM Bhd by Gamuda-MMC that was reported in the news recently, Gamuda did consider it in early-2013 but the idea was dropped due to feasibility issues.
Meanwhile, plans to monetise its infrastructure assets via a separate listing or a business trust could be postponed as management thinks that the current market condition is less conducive.