Gamuda to gain from reduced foreign role in major projects


Gamuda Bhd’s stock price retracement is sustainable as most of the negative news has crystalised following the government’s decision to review and cancel some mega infrastructure projects.

Gamuda rose 13 sen, or 3.8%, to RM3.53 yesterday after having tested a year-to-date low of RM3 on May 30 following plans to review or cancel some of the mega projects was announced by the ruling government. Pre-election, Gamuda closed at RM5.10 on May 8.

AllianceDBS Research Sdn Bhd analyst Chong Tjen-San said much of the bad news surrounding the stock may be behind it although the issue of the water restructuring in Selangor is yet to be addressed.

“At current price, we think the market is ignoring three things: The changing landscape where Malaysian contractors will be prioritised over foreign contractors and Gamuda is a key beneficiary,” he told The Malaysian Reserve.

He added that the market is also ignoring company’s core competencies and reputation for large-scale infrastructure contracts and its improving property franchise.

“The company’s property franchise is on track to show a 47% growth in pre-sales in the financial year 2018 to RM3.5 billion.

“Lastly, the market is also ignoring the potential revival of the Penang Transport Master Plan,” he said.

The company was upgraded to ‘Buy’ with a target price of RM4.73, according to the research report released on June 6, 2018.

The report said larger contractors with reputable track records and strong balance sheets like Gamuda are expected to emerge as winners, especially if some of the cancelled projects are eventually revived.

“Greater transparency, less bureaucracy and potentially less foreign competition due to changes in government policies will be the long-term trend in the sector,” it noted.

It added that the most important catalyst for Gamuda and the construction sector is the revival of key infrastructure projects. “In our view, the Mass Rapid Transit Line 3 (MRT3) will eventually be revived and Gamuda will be a key beneficiary,” it said.

The report noted that the Penang Transport Master Plan could fill the void left by the government’s cancellation of the MRT3 project.

“Our earnings are below consensus as we factor in minimal wins of RM3 billion for the financial year 2019 (FY19). For FY18, we assume zero wins,” it said.