Sep 23, 2010

Construction - MRT technical study

Buy ratings on the strongest beneficiaries –
Gamuda (Buy, TP RM4.35), MMC (Buy, TP RM3.20) and MRCB

According to the media, the technical study on the RM36bn MRT by the Land Public Transport Commission (LPTC) and MinConsult will be concluded by early October. LPTC said in a statement that the paper would be presented to the Steering Committee on the Klang Valley Integrated Transportation System and will be tabled to the cabinet.  The technical study included corridor and alignment, engineering, environmental and social impact with the key objective that the MRT would meet the needs of the public.

There will be a further study known as the value management study (VMS) jointly done by LPTC and the EPU of the PM’s department. This is to ensure the project is economically sustainable and optimises government spending with the PPP model being preferred. Separately, LPTC will also be conducting a feasibiliy study on the proposed high-speed rail (HSR) linking KL and Singapore where an outcome would be within 6 to 12 months. 

We think this piece of news will assure the market that the RM36bn project will receive cabinet approval soon. Cabinet approval in our view will be the key inflection point for this project. We see minimal risk of this not happening as the project has already been earmarked by Pemandu with a 5-star rating (i.e. received a high level of commitment). If all goes well, we understand the MMC-Gamuda JV hopes to start work in mid-2011. 

We maintain our Buy ratings on the strongest beneficiaries –
Gamuda (Buy, TP RM4.35), MMC (Buy, TP RM3.20) and MRCB

(Buy, TP RM2.25). Given the sheer size of the project where the JV is only aiming for the tunneling portion worth RM14bn, we expect all the other stronger and more established contractors to benefit. Hence, we also like IJM Corp (Buy, TP RM6.20), WCT (Buy, TP RM3.60) and Sunway (Buy, TP RM2.10).

by HwangDBS Vickers