Gamuda ADD, TP RM4.35, RM3.79 close
We expect Gamuda’s rail and tunnelling credentials from MRT 1 and 2 to give it a strong advantage over other bidders for the MRT 3 underground package, which we estimate to be worth RM11bn for the MMC-Gamuda JV (50:50). End-Oct net gearing stood at 0.18x
HSS Engineers ADD, TP RM0.685, RM0.49 close
Securing the RM998m MRT 3 PMC package is a huge positive for HSS – backed by its strong track record in past MRT projects. We like HSS Engineers given rising demand for engineering and project management services (EPMS) during the sector’s post-pandemic recovery cycle.
IJM Corp Bhd ADD, TP RM2.09, RM1.78 close
A stronger balance sheet post the sale of IJM Plantations, with end-Mar net gearing of 0.26x, positions IJM Corp as a strong contender for the tier-1 civil works packages of MRT 3, which have a private sector funding element.
Largest MRT 3 PMC package awarded
- MRT 3 Corp rolls out first out of five main packages of MRT 3: RM998m PMC package, the largest of such scope since MRT 1 and MRT 2.
- A huge positive for HSS Engineers for being appointed as the PMC of MRT 3 – boosting HSS’s order book by 93% to RM1.5bn (all-time high).
- MRT 3 is the sector’s bright spot in 2H22F; Reiterate Neutral – Gamuda, IJM Corp and HSS Engineers are our preferred picks.
One of five main packages of MRT 3 awarded to HSS Engineers
? MRT Corp, in its press statement via StarBiz, said it has appointed HSS Engineers as the project management consultant (PMC) for the MRT 3 Circle Line. The PMC package is one of the five main packages of MRT 3 tenders, which received five bids through five consortiums that comprised 13 companies altogether (HSS Engineers being one of the consortiums – HSS Integrated-HSS Engineering JV). The total contract value of RM997.9m works out to 2.9% of MRT 3’s construction cost of RM33.4bn (previous estimate of RM31bn). Apart from engineering and project management services (EMPS), HSS (being the PMC) will be responsible for the synchronisation of construction work activities among the civil works contractors.
HSS – secures its largest PMC package since MRT 1
? For HSS, which has yet to announce the PMC contract award, the MRT 3 PMC package represents its largest rail contract to date: prior to the cancellation of the MRT 3 (Circle Line) project in Apr 2018, HSS was appointed by MRT Corp as the Independent Consultant Engineer (ICE) with a contract value of RM290m (based on the tender scope at the time). Additionally, the group was also appointed as the ICE for the MRT 2 (Putrajaya Line) project in 2015 with a revised contract value of RM159m. The RM998m MRT 3 PMC award raises the group’s RM517m outstanding order book by 93% to its all-time high of RM1.5bn (FY22-24F EPS maintained pending details). Back-of-the envelope estimates using an 8-year project schedule and 1QFY22’s 7% net profit margin point to RM8.7m net profit contribution p.a. (50-70% of FY22-24F EPS) from the PMC package. The share price rose 10% on 4 Aug ahead of this news. Our RM0.69 TP (based 24x CY22F P/E, in line average P/E of global peers) remains intact.
Deadline extension for two civil works tender submissions
? According to MRT Corp, the tender submission deadline for two out of three tier-1 civil works packages (CMC 302 and CMC 303) has been extended by a month from Aug 22 to Sep 22 due to overwhelming response. The end-Aug tender deadline for CMC 301 remains unchanged. Based on our estimates, contract values for CMC 301, CMC 302 and CMC 303 would be worth RM3bn, RM14.7bn and RM13bn, respectively (Figure 1). Among contractors under our coverage, we expect Gamuda and IJM Corp (via its consortiums) to be among the frontrunners for the tier-1 civil works packages.
MRT 3 the sector’s bright spot in 2H22F; Reiterate Neutral
? We stay Neutral on the construction sector and maintain our view that the MRT 3 project would emerge as the sector’s bright spot for contract flows in 2H22F. Our preference for 2H22F plays remains intact: 1) asset divestment via highway asset sales; 2) stronger balance sheet positions with special dividends in the pipeline; 3) improving order book growth outlook; 4) advantage in clinching tier-1 MRT 3 civil works packages; and 5) strong overseas order pipeline. Political/election uncertainties, rising material prices,
and the government reverting to a cautious stance on other new mega project rollout are overhang risks. Our preferred large-cap names are Gamuda and IJM Corp given potential catalysts from MRT 3 awards in 4Q22F/1Q23F; in the small-cap space, we like HSS Engineers given the rising demand for engineering and project management services (EPMS) – catalysed by the new RM998m MRT 3 PMC win.