KUALA LUMPUR, July 16 -: Gamuda Bhd’s recent 40-year agreement to supply treated water from northern Perak to Penang under the Northern Perak Water Supply Scheme will likely lead to the group securing the construction contract, estimated at around RM4 billion, in coming months, according to Hong Leong Investment Bank (HLIB).
“Pending finalisation of remaining details, the construction contract is likely to materialise in the coming months when the JV (joint venture) formally awards the package to Gamuda.
“We estimate the contract value at RM4 billion (versus Gamuda’s current RM52 billion order book) with PBT (profit before tax) margins of 10%-12%,” said HLIB in a note on Thursday.
For context, the bulk water supply agreement (BWSA) was signed on Wednesday by Prasarana Air dan Irigasi Perak Sdn Bhd and Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP).
Prasarana Air dan Irigasi Perak Sdn Bhd is owned by Khazanah Air Perak Sdn Bhd, a company that is 50% indirectly owned by Gamuda. PBAPP is, meanwhile, a subsidiary of PBA Holdings Bhd.
Despite operations only due to commence by March 31, 2032, HLIB said the overall scheme would yield an average annual profit after tax of approximately RM100 million in its first 10 years of operation, with Gamuda thus receiving a substantial RM50 million share.
“The revenue mix will likely comprise fixed capacity charges of an estimated RM210 million, supply charges of RM1.70 per cubic meter subject to escalation of 11.75% every three years and variation in chemical and electricity costs,” the house noted.
Notwithstanding the BWSA, HLIB has maintained its ‘buy’ rating on Gamuda with an unchanged target price of RM5.27, based on a 10% discount of a sum-of-parts valuation of RM6.02.
Gamuda currently has a near unanimous consensus on its stock, with 20 out of 22 ‘buy’ recommendations from research houses tracked by Bloomberg.
The remaining two have ‘hold’ calls, bringing the average target price to RM5.30, underpinned by the group’s robust order book replenishment and exposure to foreign real estate and property markets.
At the time of writing, Gamuda was trading at RM4.20 per share, bringing its market capitalisation to a whopping RM25.05 billion.
