Gamuda-WR oh Gamuda-WR

Gamuda-WR worth 1.31????? Woo lala, so high????

KUALA LUMPUR: Affin Hwang Capital Research has recommended Gamuda Bhd’s shareholders to subscribe for the rights issue of Gamuda warrants and estimated a RM1.56 fair value for the warrant.

“We recommend subscribing for the in-the-money warrants at issue price of 25 sen. We cut our earnings per share forecasts by 14% for FY16-18 estimates and reduce our RNAV-based target price to RM5.59 from RM5.84 to reflect the fully-diluted impact of the warrant issue.

“Using the Bloomberg Trinomial warrant pricing model, we estimate the warrant fair value is RM1.56 at our target price,” it said. 

Gamuda’s rights issue of warrants on the basis of 1 warrant for every 6 shares held will close for subscription on Feb 26.

Affin Hwang said the warrant rights (GAMUDA-WR) have started trading from Feb 15 and would cease trading on Feb 19.

“Based on our fair value of RM1.56 for the warrant, the implied fair value for GAMUDA-WR is RM1.31 (after deducting the warrant issue price of 25 sen). Hence, the closing price of GAMUDA-WR on the first day of trading at 30 sen is attractive,” it added.

Affin Hwang said even at the current implied warrant price of 55 sen (GAMUDA-WR price + issue price), buying the warrant to exercise for the shares at an implied cost of RM4.60 is only at a 4.5% premium to current share price of RM4.40; a low warrant premium considering the long five-year American call exercise period. 

The warrants provide a geared exposure to Gamuda’s stock (high implied warrant gearing of 8 times).

“We remain positive on Gamuda’s long-term prospects as we believe the MMC-Gamuda joint venture is in a strong position to win the current tender for the underground portion of the Klang Valley MRT Line 2 project worth about RM12bil, expected to be awarded in mid-2016. 

“We gather that the Gamuda-Naim joint venture is also in a strong position to win the first package of the Pan-Borneo Highway (Sarawak section) worth over RM1bil expected to be awarded in first quarter 2016,” Affin Hwang said. 

The research house sees Gamuda as a core holding for exposure to the Malaysian construction/infrastructure sector. 

It has reiterated a “buy” call with a reduced RNAV-based 12-month target price of RM5.59.