Gamuda (BUY) - Tunnel sharing

Gamuda (BUY)

Tunnel sharing

• Financial Daily reported that MMC-Gamuda JV is looking to subcontract 4km of the total 9.5km MRT tunnelling works to foreign parties and would also lease the boring machines to them. This will allow MMC-Gamuda JV to focus on the more challenging karstic limestone formation.
• Although no value was given, the Financial Daily estimate that the Kenny Hill formation stretch is expected to cost around RM3bn. We are surprised by this news as it would indicate lower earnings margins for MMC-Gamuda as opposed to the estimated 10-12%. However, this would also translate to better risk-adjusted compensation.
• We maintain our BUY call with a TP of RM4.41 based on SOP valuation.

Source: HLIB Research - 17 April 2012