Gamuda, IJM Corp, E&O top buys for exposure to Penang

KUALA LUMPUR: Affin Hwang Capital Research has Gamuda, IJM Corp and Eastern and Oriental (E&O) as its top Buys for infrastructure and property exposure to Penang.

It said on Monday Penang was forging ahead with development through public-private partnership (PPP) projects.

The RM27bil Penang Transport Master Plan (PTMP) is the largest PPP project, which is expected to be awarded by September.

“Construction/infrastructure and property companies are potential beneficiaries of the PTMP project. Top BUYs for exposure to this theme: Gamuda, IJM Corp and E&O,” it said.

Affin Hwang Capital Research said the Penang state government was pushing for the economy to move up the value chain by encouraging knowledge-intensive and innovation-led manufacturing and services.

Temasek’s proposed joint venture with Penang Development Corp (PDC) to develop a business processing outsourcing (BPO) centre and an international technology park in Penang with estimated gross development value (GDV) of RM11.3bil is a feather in the cap for the state in attracting new foreign direct investments (FDIs).

The jobs created from new investments would support population growth and long-term property demand in Penang. This has attracted property development companies such as E&O, Eco World and Ewein to embark on new largescale mixed development projects in the state with total GDV of RM60bil.

E&O has the highest exposure to Penang with property development projects in the state comprising 77% of its GDV of RM34bil.

“The state government is aware of the potential infrastructure bottlenecks that would be created by the rapid development of new industries and population growth. The proposed RM27bil PTMP should cater to the infrastructure needs of the state up to 2030.

“Six consortiums have submitted bids to be the project delivery partner (PDP) for the PTMP and a decision is expected by September,” it said.

“We believe Gamuda (will likely be appointed the PDP for the project. Being one of the largest contractors in Penang, IJM Corp is expected to win a substantial portion of construction work for the PTMP,” it said.

Affin Hwang Capital Research said the Penang state government has shown its commitment and dynamism to drive the long-term economic growth of the state.

Despite limited funding support from the federal government, the state government’s effort to work together with the private sector through PPP initiatives should support long-term infrastructure development of the state.

The research house said it likes E&O for the deep value of its assets, especially the STP2 project, and the potential unlocking of value once reclamation work starts by 4Q15. The stock’s current Price/RNAV of 0.4 times is below the Malaysian property sector average Price/RNAV of 0.6 times.

“We recommend a BUY on E&O with a 12-month target price of RM2.62, based on a 40% discount to RNAV/share of RM4.37,” it said.

It also said Gamuda was a core holding for exposure to the large-scale infrastructure projects being implemented in Malaysia, such as the Klang Valley MRT. Its potential appointment as PDP for the PTMP would provide another large-scale project to support Gamuda’s long-term earnings growth trajectory.

“Gamuda is our top BUY in the Malaysian construction/infrastructure sector. Our RNAV-based target price is RM5.65, excluding the PTMP project. Conservatively, we estimate that the PTMP project would enhance Gamuda’s RNAV/share by RM0.12 if secured,” it said.

As for IJM Corp, Affin Hwang Capital Research said the company has good earnings visibility and growth prospects with a record construction order book of RM7bil comprising mainly the West Coast Expressway and the Kuantan Deepwater Terminal projects.

IJM Corp’s RM6.5bil The Light Waterfront project in Penang with remaining land bank of 123 acres would benefit from improved connectivity with implementation of PTMP.

The research house said the proposed LRT linking Tanjong Bungah to Bayan Lepas is expected to pass through The Light Waterfront project.

“IJM will potentially win construction contracts in the PTMP and grow its land bank in Penang via land swaps. We believe IJM will potentially pay a special dividend in FY16, funded by proceeds from the sale of Indian Highway assets and a piece of land at The Light Waterfront project. We have a BUY rating on IJM with an RNAV-based target price of RM8,” it said.

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