Upon successful acquisition, Gamuda’s cash position will be significantly enhanced, providing significant liquidity to its asset profile.
KUCHING: Analysts are positive on the price offered to Gamuda Bhd (Gamuda) from the Ministry of Finance (MoF) for the take-over of Gamuda’s four highways for a collective enterprise value of RM6.20 billion.
This translates to an effective equity value of RM2.36 billion for all four highways – namely KESAS, SPRINT, LITRAK, and SMART – for Gamuda.
MIDF Amanah Investment Bank Bhd (MIDF Research) believed the consideration comprises cash, which could likely be disbursed in the form of an upfront payment that is followed by gradual instalments.
“Notably, we think the offer price was reasonable as the amount did not deviate much from our previous estimates at RM2.50 billion,” it said in its analysis yesterday.
“Prior to the offer announcement, we viewed the potential takeover rather negatively.
“This was due to the possibility of the highways being valued at construction cost instead of at a discounted cash flow, which would likely ignore its economic value, hence undervaluing the asset.
“However, based on the offer price revealed, it was likely that the price was reached based on market norms.”
Upon successful acquisition, MIDF Research believed Gamuda’s cash position would be significantly enhanced, providing significant liquidity to its asset profile.
“We opine the potential cash proceeds could be utilised for other projects, which includes the funding its large infrastructure projects in Penang.
“At this juncture, we do not rule out the prospect of special dividend as to compensate for the loss in a stable income source going ahead.”
Similarly, Kenanga Investment Bank Bhd (Kenanga Research) was mildly positive on the offer price proposed by MOF for the take-over of all the above-mentioned highways given that it is slightly above its expectations by RM135.4 million or about RM0.04 per share.
“We believe that the positive variance could come from the extended concession period
from KESAS which we previously did not include into our valuation.
“In terms of gearing, we would expect its net gearing to come down from 0.6 to 0.3 times levels upon completion of the sale of these highways.
“Post-sale on the stake of those highways, we do not rule out the potential on special dividends as a reward for shareholders.
“Assuming 50 per cent pay-out from the disposal of RM2.36 billion, we reckon that shareholders can expect a special dividend of 48 sen.”
In its own notes, AmInvestment Bank Bhd (AmInvestment Bank) said the RM2.36 billion proceeds from the disposal would reduce Gamuda’s net debt and gearing of RM3.4bil and 0.44 times to RM1.1 billion and 0.14 times respectively.
“We cut our FY20–21F net profit forecasts by 20 and 34 per cents respectively as we expect contributions from the toll road assets to halve in FY20F and completely be removed in FY21F, partially mitigated by interest savings from the disposal proceeds.
“Realistically, it will take Gamuda some time to identify new businesses to fill the vacuum.
“The market has high expectations on the massive Penang Transport Master Plan (PTMP) of which Gamuda is in the driver seat via its 60 per cent stake in the consortium that has been appointed the project delivery partner.
“While the PTMP project appears viable – the three man-made islands under the Penang South Reclamation could be sold for RM70 billion, more than enough to fund RM46 billion reclamation cost and public infrastructure spending under the PTMP project – its implementation will be very challenging from a cash flow standpoint.”
AmInvestment Bank forewarned that the PTMP project will incur tremendous upfront cash flow to fund reclamation and the construction of public infrastructure, only to be recouped many years down the road via land sales from the three man-made islands.
“We believe this could only be possible with substantial soft loans either from the federal government or international development banks.”