KUALA LUMPUR (June 24): The RM6.2 billion offer made by Minister of Finance Inc's (MoF Inc) to buy out Gamuda Bhd's and its 44%-owned associate Lingkaran Trans Kota Holdings Bhd's (Litrak) toll concessions did not add fuel to the construction giant's share price rally.
Gamuda's share price fell 22 sen, or 5.5%, to RM3.61 at 3.15pm. The stock is on the rank of the ten most traded counters on Bursa Malaysia, with 24.7 million shares changing hands since the opening bell.
However, Litrak's share price soared to RM5 this morning before it retreated to RM4.86, up 65 sen or 15.4% from last Friday's closing at 3pm. The government offers to pay RM5.20 per share to take over its toll concessions.
Most analysts concur that the government's offer is fair but the fresh concern is how Gamuda would fill the vacuum after the divestment.
"We cut our FY20 (the financial year ending July 31, 2020)-FY21 net profit forecasts by 20% and 34% respectively as we expect contributions from the toll road assets to halve in FY20 and completely be removed in FY21, partially mitigated by interest savings from the disposal proceeds.
Realistically, it will take Gamuda some time to identify new businesses to fill the vacuum," AmResearch analyst Joshua Ng commented in his research note this morning.
Ng maintains the "underweight" call on Gamuda, citing one reason is that valuations of construction stocks, Gamuda included, have run ahead of their fundamentals in the heat of this euphoria.
He pegs the fair value of Gamuda at RM2.64. "Our valuation basis for Gamuda's construction business (within the sum-of-part valuation) remains unchanged at 10x forward earnings, in line with our benchmark forward target P/E of 10x for large-cap construction stocks," Ng wrote.
In contrast, AllianceDBS Research reiterates its "buy" call on Gamuda with a target price of RM4.30. The research outfit expects a special dividend after the asset sale. "A sizeable special dividend is also likely. Assuming a 50% payout, this translates into a one off yield of c.12%," said AllianceDBS.