KUALA LUMPUR: Gamuda Bhd remains a top pick among the big capitalised stocks for the multi-billion ringgit rail tunnelling jobs in the Klang Valley and other road projects, especially the Pan Borneo Highway (Sabah), according to CIMB Research.

The research house said the infrastructure company was in a “sweet spot for bigger rail tenders” and has a target price of RM5.88 pegged to a 10% realised net asset value (RNAV) discount and an implied 19% upside.

“We maintain our FY17-19 earnings per share (EPS) forecasts.

“Key downside risks are delays in job roll-out and the Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) deal,” CIMB said.

The research house said its revised addressable market size for domestic rail and tunnelling contracts reinforces Gamuda’s position as among the likely biggest beneficiaries of this segment over the medium to longer term.

It added that the much improved job replenishment visibility was underpinned by the research house’s estimated RM41bil total addressable tenders for rail tunnelling projects.

A key driver to this is the MRT 3 Circle Line, which is still being studied.

“Chances of Gamuda exceeding our RM2bil assumed new wins this year remain good,” CIMB said.

It noted that Gamuda’s internal RM3bil to RM4bil job replenishment target comprises larger-value rail contracts (LRT 3 and the China-led Gemas-JB double-tracking) and a portion of the Pan Borneo Highway, which was likely to be accelerated in conjunction with the impending general elections that, based on its market strategy and outlook, could occur in second half of 2017 at the earliest.

“In our best case, there is 20-30% upside to its RM8.9bil order book,” the research house said.

“With a healthy order book-revenue cover of 4.4 times, we expect the momentum of construction earnings in first quarter of financial year ending July 31, 2017 to be sustained in the coming quarters,” it said.