Affin Hwang hosted a road show in London just a few days ago which you can read the full analyst report as attached. Please double click the file to read the full report.
Affin Hwang 20160725 Gamuda CU
The introduction is as follow:
Low foreign shareholding
We hosted Gamuda for a roadshow in United Kingdom, meeting ten foreign investment firms. Most were not shareholders and wanted an update on the construction sector and Gamuda. There were some concerns on Malaysia’s political and macroeconomic environment but most agree on the good prospects for Gamuda. Potential new contracts of RM3-4bn could lift earnings. Gamuda remains our top BUY among large-cap construction stocks with RNAV-based target price of RM5.70. Reasonable interest Gamuda’s management met ten foreign investment firms in London and Edinburgh. Most investors were either new to Gamuda or have not met the management for some time. This explains Gamuda’s current low foreign shareholding of 22%, less than half of its historical peak of over 50%. Some investors liked the good prospects for the company given its record order book improving earnings visibility. But some were concerned with its RM27bn Penang Transport Master Plan (PTMP) project. Potential new contracts Gamuda is optimistic in growing its current construction order book of RM8.2bn and Project Delivery Partner (PDP) contract with estimated value of RM8.6bn. It has submitted tenders for the Pan-Borneo Highway (Sarawak section) packages that could generate RM1bn in construction works if secured. Gamuda is negotiating for a subcontract package potentially worth over RM1bn from the Chinese consortium awarded the Southern Double Tracking (SDT) project. The company is also looking to bid for civil work packages potentially worth about RM1bn for the Light Rail Transit Line 3 (LRT3) project as it is one of the pre-qualified contractors. These projects if secured will potentially lift its order book by RM3-4bn.
Let me give you a clearer explantion:
The closing price of Gamuda WE is Rm 1.11
The expiry date of warrant is 6th March 2021 and Conversion price is Rm 4.05
Total Rm 5.16
The closing price of Gamuda is Rm 4.86
Rm 5.16 /4.86 = 6.2% premium
Affin Hwang’s target price for Gamuda is Rm 5.70
Potential gain Rm 5.70 – Rm 4.86 = 84 sen.
If you buy one Gamuda WE at Rm 1.11, the potential gain is 84 sen, provided the premium remains at 6.2%. But in most cases if Gamuda share goes up to Rm 5.70, it is most likely the premium will be higher because it requires much less capital to buy warrant than the mother share. Assuming its premium is 10% ( usually more for a good quality stock) the warrant price will be Rm 5.70 X 1.10 = 6.27 – 4.05 = Rm 2.22 .
That simply means you can double your money if you buy Gamuda WE at Rm 1.11 when the mother share goes up to Rm 5.70. The question is when?
My guess is within one year from now because all the news about Gamuda’s tenders for construction works and the Federal Government’s approval for the RM27bn Penang Transport Master Plan (PTMP) project will be known.
Besides Affin Hwang, Malaysia Equity Research and Hong Leong Investment Bank also have strong buy recommendation for Gamuda.
Instead of buying one Gamuda share, you can buy nearly 5 warrants and your profit will be 5 times.
Ooi Tiek Bee and I have been accumulation Gamuda WE. I am obliged to tell you that I have a lot of this warrant. I am not asking you to buy but if you buy, you are doing it at your own risk.
You can expect some senseless critics will recommend you to sell. My advice to them is that they must examine their track record to see how well they really have performed. If they want people to think that they are so clever, they must write some articles including showing the shares they have bought and sold to make money.
Koon Yew Yin 官有缘 - [Revised] Gamuda WE is a safe and good bet