HLIB maintains a ‘buy’ on Gamuda despite issues with its Sydney Rail joint venture project

KUALA LUMPUR, July 31 — Hong Leong Investment Bank Bhd (HLIB) has maintained a “buy” call on Gamuda Bhd with a target price of RM4.92 per share taking the view that its joint venture (JV) Sydney Metro West (SMW) rail line project is too costly to abort with no end product.

It noted that SMW is a 24-kilometre (km) line connecting Greater Parramatta and Sydney CBD and works on the line started in 2020.

Tunnelling for the project is being delivered in three packages: western (Westmead to Sydney Olympic Park), central (Sydney Olympic Park to The Bays Precinct) and eastern (The Bays Precinct to Sydney CBD).

In a note today, HLIB said the Gamuda-Laing O’ Rourke JV was awarded the western package spanning 9 km comprising twin tunnels for a contract sum of A$2.16 billion (RM6.5 billion) in March 2022. Progress for the project stood at 27 per cent at the end of Gamuda’s third quarter for the financial year 2023 (3QFY2023).

Tunnelling has long commenced with progress on the central package, awarded in July 2021, to Acciona-Ferrovial JV.

“The two tunnel boring machine (TBM) for the central package are underground, making their way from the Bays Precinct to Sydney Olympic Park. From our estimates, the progress rate for Gamuda’s western package could be nearing the 40 per cent mark with one TBM underground.

“The eastern package has also commenced tunnelling operations in Hunter Street, Sydney CBD. During this review period, we understand from the management that there has been no directive to slow down or pause on works,” it said.

Based on its current progress, HLIB said the project is likely too costly to abort. Nevertheless, it does not rule out the possibility of cost-cutting measures on other smaller or yet-to-be-awarded packages such as stations. HLIB said on a project-wide basis, cost blowouts are inflation driven from 2021 to 2022 and are, therefore, not surprising.

“Although we take the view that Gamuda could emerge unscathed, there might be spill-over effects on its FY2023 and FY2024 Australian projects pipeline valued at AUUS$26.4 billion, depending on the direction of New South Wales Labour party’s stance on infrastructure,” it added. — Bernama