The Infrastructure and property group has a 60% stake in SRS Consortium Sdn Bhd that is involved in the Island A reclamation project via a 70:30 joint venture between SRS Consortium and a state nominee.
Gamuda essentially participates in the reclamation project at two levels, namely as a turnkey contractor and project developer. It is the sole contractor for Phase 1 of Island A reclamation works, measuring 1,200 acres out of 2,300 acres.
The Penang state government agreed to scale down the PSI project by cancelling two of the three islands (Island B and Island C) after Prime Minister Anwar Ibrahim said recently it will provide additional funds to expedite the construction of the Bayan Lepas light rail transit (LRT).
In a note today, PIB Research stated there will be no earnings impact to Gamuda as the agreement signed between SRS Consortium and the state nominee only covers Phase 1 of the Island A reclamation project.
The environmental impact assessment (EIA) approval for the PSI had been obtained from the Department of Environment earlier this month.
The research house expects reclamation works to commence by Q4FY2023 assuming the Environment Management Plan (EMP) approval takes another three to four months.
“On top of that, we also expect the Bayan Lepas LRT under the Penang Transport Master Plan (PTMP) to kick off sooner than expected,” it added.
PIB Research maintained its “outperform” call and target price of RM5.10 as it has accounted for the PSI reclamation project in Gamuda’s FY2023 order book replenishment assumption of RM15 billion.
It estimated some RM4 billion to RM4.5 billion in the order book over a reclamation period of six years, commencing Q4FY2023 with RM8 billion to RM9 billion to be recognised over seven years.
Land sales are expected to commence from the fourth year after reclamation has started, it added.
The research firm estimates Gamuda to see net profit recognition of RM304 million to RM342 million from this reclamation works by assuming a 10% pre-tax margin.
“We estimate this project would add roughly 20% to Gamuda’s outstanding orderbook of RM20.5 billion,” it added.
It noted total construction cost of the project, including common infrastructure work, is expected at RM8.5 billion, to be expensed over up to six years.
“Nonetheless, management reiterates that there is no obligation to complete Phase 1 within a fixed timeline. The rate of development will be purely driven by market demand,” it said.
According to reports, the Penang government in 2013 approved a RM27 billion PTMP to address the state’s chronic transport and traffic problems.
Two years later, SRS Consortium proposed an amended PTMP which saw the proposed costs rising to RM46 billion. The proposal included the reclamation of the three islands to finance the PTMP.
Gamuda’s shares closed 1 sen lower at RM4.11, giving it a market capitalisation of RM10.9 billion.