Gamuda (BUY) - Tunnel sharing

Stock Name: GAMUDA
Company Name: GAMUDA BHD

Research House: HLG

Price Call: BUY

Target Price: 4.41

Gamuda (BUY)

Tunnel sharing

• Financial Daily reported that MMC-Gamuda JV is looking to subcontract4km of the total 9.5km MRT tunnelling works to foreign parties and would alsolease the boring machines to them. This will allow MMC-Gamuda JV to focus onthe more challenging karstic limestone formation.
• Although no value was given, the Financial Daily estimate that the KennyHill formation stretch is expected to cost around RM3bn. We are surprised bythis news as it would indicate lower earnings margins for MMC-Gamuda as opposedto the estimated 10-12%. However, this would also translate to betterrisk-adjusted compensation.
• We maintain our BUY call with a TP of RM4.41 based on SOP valuation.

Source: HLIB Research - 17 April 2012