KUALA LUMPUR: Gamuda Bhd is the clear winner of recent news that the Cabinet has greenlit the Penang LRT project, Hong Leong Investment Bank Bhd (HLIB) research said.
The firm said the government aims to wrap up negotiations within six months with Gamuda's 60 per cent owned subsidiary, SRS Consortium Sdn Bhd, finalising the contract value and terms for segment 1 of the project.
The civil works for segment 1 of the Penang LRT - Silicon Island to Komtar, Georgetown - are expected to fetch contract values of about RM10 billion, carrying an effective value of RM6 billion for Gamuda.
The investment bank added that this could take unbilled construction orderbook to a mammoth RM30.1bn (+25%) once awarded.
"Assuming the Letter of Award (LOA) is received within July of the financial year 2024 (FY24), the company may end fiscal year 2024 with RM15.7 billion of contract wins, with a target of RM25 billion for FY24 and FY25 combined."There's upside to this given two data centre tenders, Pan Borneo Highway (PBH) Sabah and Suburban Rail Loop (SRL) Works Packages D (WPD)."The award of segment 1 will bring Gamuda's decade long pursuit of the LRT project to a successful close. "Gamuda had through SRS emerged as early project proponent directing significant time and resources towards developing the project (uncompensated costs)," it said in a note.
According to HLIB, Gamuda committed to directing profits from self-funded reclaimed land sales towards the LRT project, prior to securing federal funding.
It said the possibility remains that Gamuda may participate in Segment 2, as well as in the open tenders for systems and rolling stock packages.
Previously, it was reported that the Cabinet has green-lighted the Penang LRT project.
Construction is expected to commence in the fourth quarter of 2024 (4Q24) and tenders will be called for 2/3 main packages soon.
As such, HLIB has maintained its "Buy" rating on Gamuda with a higher target price (TP) of RM6.11 from RM5.93, post-adjusting for an earlier than expected project kick-off.
Other companies within HLIB's coverage which are considered potentially strong contenders for the segment 2 package - Komtar, Georgetown to Penang Sentral - are Sunway Construction Group Bhd (SunCon), IJM Corp Bhd and Malaysian Resources Corp Bhd (MRCB) – all of which are experienced railway contractors.
However, there is no indicative value for segment 2 civil works as yet.
"Given extensive marine elements, we do not discount the possibility of Gamuda participating in segment 2 tenders while Muhibbah (NR) could participate in subcontracts in Segment 2. "In addition to the above, we reckon that TRC Synergy Bhd, Gadang Holdings Bhd, Kimlun Corp Bhd, Gabungan AQRS Bhd, Econpile Holdings Bhd, Aneka Jaringan Holdings Bhd and Eita Resources Bhd could also bid for subcontracts for segments 1 and 2.
"As for the systems and rolling stock package, Gamuda aside we reckon IJM Corp Bhd through its partnership with Pestech Technology Sdn Bhd could stand a decent chance although systems works for past railway projects have been skewed to the foreigners," it added.
On that note, HLIB has maintained an "Overweight" call on the overall construction sector.
It said with mega infrastructure contract rollouts expected and robust private sector job flows from data centers, factories/warehouses, and commercial/residential projects, contract awards look set to expand beyond the usual RM20 billion per annum norm.
HLIB's big cap top pick is Gamuda with a "Buy" rating and TP of RM6.11 premised on attractive valuation and stronger tender positioning in local infrastructure project rollouts.
Its mid-cap top pick is SunCon with a "Buy" rating and TP of RM3.20, as the investment bank see it as a proxy to coming infrastructure project rollouts, vibrant advanced technology facilities sector and a growing parent-co empire.
The Penang LRT is estimated to have a construction period of six years and will be completed in 2030.