KUALA LUMPUR (April 5): Private company Amanat Lebuhraya Rakyat's (ALR) bid to take over four highway toll concessionaires in the Klang Valley is timely, given that infrastructure giant Gamuda Bhd likely needs funds to bid for some mega infrastructure projects.
Investment analysts covering the stock believe that Gamuda can unlock the value of its highway concessions through the deal and that this will strengthen the group’s balance sheet, lower leverage, reward shareholders with special dividends and reduce borrowings.
If Gamuda's divestment is successful, it will help the group to repay its existing net debt of RM1.7 billion and achieve a net cash position of RM600 million. Besides, the group may also work on financing future projects, such as the Penang South Island (PSI), Australian projects, Mass Rapid Transit 3 (MRT3) Circle Line, Stormwater Management and Road 2 Tunnel (SMART2 Tunnel), which could be financed through a private financing initiative.
Gamuda on Monday (April 4) received a conditional offer of RM5.48 billion from ALR — a private and not-for-profit company that is undertaking a restructuring of certain toll highway concessions on behalf of the government — to acquire all four highway concessions that it owns.
The highway toll concessions comprise Gamuda’s 70%-owned Kesas Sdn Bhd (Kesas Expressway), 51.6%-owned Sistem Penyuraian Trafik KL Barat Sdn Bhd (SPRINT Expressway), 43.2%-owned Lingkaran Trans Kota Sdn Bhd (Damansara-Puchong Expressway or LDP) and 50%-owned Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd (SMART Tunnel).
The offer is valid until April 30, 2022 and will be fully financed by sukuk. Post-acquisition, the highways will not see future toll hikes, but the concession period will likely be extended by five to 10 years for the concessionaires except for SMART, whose concession period may be shortened.
According to PublicInvest Research, Gamuda's equity value of RM2.33 billion is considered fair and in line with the research house's valuation of RM2.28 billion for the four highways, although slightly lower than Pakatan Harapan's RM2.36 billion offer in 2019.
“Overall, we are positive on this development despite the fact that Gamuda will have a loss of recurring earnings of ~RM170 million yearly,” said the research house in a note on Tuesday.
UOB Kay Hian Research said the RM2.33 billion Gamuda could get from the deal is close to its assumed valuation of RM2.36 billion.
But to replace the RM170 million profit per year that the concession business typically contributes (about 25% of the group's total earnings), Gamuda is looking to aggressively strengthen its other two core businesses, namely construction and real estate.
“Local projects such as MRT3, Penang South Reclamation, SMART 2 and Sg Rasau water plant coupled with regional tender wins may contribute to earnings ahead. Its property division is also aiming to double presales to RM6 billion/year between FY21-24. Ultimately, this will help to improve sustainable earnings by over RM500 million/year. The company is also looking to reinvest in environmentally friendly (green) recurring income businesses in the infrastructure space,” said its analyst Noor Hazmy Noor Hazin.
CGS-CIMB Research said the equity value of RM2.3 billion for Gamuda is 1% lower than the previous equity value of RM2.35 billion assumed in the research house's revised net asset value (RNAV) calculations for each highway asset.
It said the equity value will increase the group's cash by 63% to RM6 billion and significantly improve its net gearing ratio from 18% to an estimated net cash position of RM611 million.
“This cash offer translates into 91 sen/share, or 26% of Gamuda’s market capitalisation. We believe the offer will be accepted as it provides closure to the long-drawn-out highway divestment scheme. Also, the highway trust model is deemed a win-win deal for Gamuda, the government and highway users over the longer run,” said CGS-CIMB analyst Sharizan Roseli.
Analysts maintain Gamuda’s ratings, target prices
PublicInvest said the takeover of Gamuda’s highway concession assets by the government will undoubtedly leave a void in the group’s future earnings, which could see its FY23 and FY24 earnings forecast adjusted lower by 19.9% and 18.6% respectively upon completion of the exercise by the end of FY22.
“We maintain our estimates for now, pending completion of the deal. Our 'outperform' call is maintained, with an unchanged target price (TP) of RM4.09.
“Upon completion of the deal, Gamuda will become a relatively cash rich company. The group’s gearing ratio will be reduced to -0.6x (from 0.18x in 2QFY22) from the sale of these four highways. Taking a cue from Syarikat Pengeluar Air Sungai Selangor Holdings Bhd’s (Splash) disposal in 2019, we are positive that Gamuda would reward shareholders with a special dividend, on top of the restored annual dividend payout of 12sen/share,” said PublicInvest.
UOB’s Noor Hazmy maintained his "buy" call for Gamuda with an unchanged sum-of-parts-derived TP of RM3.81, and made no earnings revision for the group pending the deal completion by the next three to four months.
“With the assumption that around 20-40% of [these] proceeds will be used as special dividends, this can translate to about 18 sen to 36 sen per share (dividend yield: 5-10%),” he said.
CGS-CIMB’s Sharizan, on the other hand retained his "add" call and a TP of RM4.25 for Gamuda.
“Assuming 10-30% of the RM2.3 billion (91 sen/share) cash proceeds are earmarked for this purpose, potential special dividends [for Gamuda] could range from 18 sen to up to 27 sen/share (5.2-7.9% yield),” Sharizan added.
Shares of Gamuda rose eight sen to close at RM3.57 on Tuesday (April 5), giving the group a market capitalisation of RM9.12 billion.
Year-to-date, Gamuda’s share price has risen 23.1% from RM2.90.