Gamuda: Time to Smoke the Peace Pipe!

Despite the 800 plus point drop on Wall Street overnight, our investors and punters will be glued onto Gamuda for the next few days. After 2 days of drum beating, senses have now begun to prevailed. The Prime Minister has indicated that the Government shall review the cancellation of the MRT2 Underground Contract that was being undertaken by MMC Gamuda.MMC Gamuda said that it would adopt an open book approach - which it refused to do previously - provided the review is undertaken by an international engineering consulting firm and its Intellect Property (IP) rights and commercially sensitive  information are respected.

If this review can break the deadlock and lead to cost-saving as well as MMC Gamuda remaining as the contractor, then the win-win solution has been achieved. Obviously the Government must not appear soft in this review and negotiation because we would be sending the wrong signals to other parties with whom the Government will negotiate next- such as the Chinese parties undertaking the ECRL project or the Singapore Government in the HSR project.

Meanwhile, Gamuda looks much more attractive after the big drop. It is now resting on the horizontal line at RM2.00. This could be a good entry to the best construction company in Malaysia.

Chart 1: Gamuda's monthly chart as at Oct 10, 2018 (Source: Malaysiastock.biz)

The second largest construction company, IJM has also dropped to a very attractive level of around RM1.40. Like Gamuda, this stock should have good support at the horizontal line of RM1.35, thus presenting a good entry to the stock.

Chart 2: IJM's monthly chart as at Oct 10, 2018 (Source: Malaysiastock.biz)

Given the big fall in US and the challenging fiscal position of our Government, I expect the near term outlook for our market to be weak. However the sharp drop in Gamuda and IJM gives us an opportunity to buy into these stocks at attractive price level. If you are a long-term investor, this opportunity should not be missed. Good luck!