KUCHING: Gamuda Bhd’s (Gamuda) 60-per cent owned subsidiary, SRS Consortium Sdn Bhd’s (SRS) signing of the master agreement with the Penang state for the Penang transport master plan (PTMP) has been viewed as a welcome development to the progress of the project.
Of note, on Wednesday, Gamuda announced that its 60-per cent owned subsidiary SRS executed the master agreement with the state government of Penang in respect of the appointment of the project delivery partner (PDP) to manage and deliver the PTMP.
“We believe the signing of the master agreement is positive following the long negotiation process since August 2015, allowing the project to kick start possibly in the first half of 2021 (1H21).
“The entire PTMP is estimated at a project value of RM32 billion for all the components, providing SRS Consortium with an estimated long-term PDP fee income of RM1.60 billion to RM1.84 billion over the 15 to 20 year development period, based on the PDP fee rate of five to 5.75 per cent.
“However, the speed of implementation of the project will depend on the ability of the state government to secure funds for the project and whether the federal government will assist in providing sovereign loan guarantees,” the research team of Affin Hwang Investment Bank Bhd (Affin Hwang) commented.
On the impact on Gamuda, the research team at Kenanga Investment Bank Bhd (Kenanga Research) noted that SRS is expected to provide the state with RM1.3 billion bridging loan to reclaim the first 800 acres of Island A.
“This will cost Gamuda RM780 million (for 60 per cent stake) and bring its net gearing up to 0.44-folds (from current 0.35-folds) which we still find manageable,” it opined.
Nonetheless, it pointed out that the total funding required to fully reclaim 800 acres of Island A is RM2.5 billion – whereby SRS and Penang State will have to explore other options for the RM1.2 billion shortfall.
“We only expect repayment when the lands are up and monetised in four to five years’ time,” it added.
Nevertheless, it said that the PDP fee of five to 5.75 per cent is a pleasant surprise as it previously anticipating a lower range of three to five per cent.
“That said, we note that the fee will likely only be applied for works where SRS will be overseeing – and not works that they are executing,” it said.
With the large funding obligations to co-develop PTMP with Penang state, it believed that Gamuda’s future free cash flows from their toll concessions worth circa RM350 million per annum could be channelled for this purpose.
“This could possibly jeopardise Gamuda’s traditional biannual 6.0 sen dividend (worth circa RM300 million annually) moving forward,” it noted.
Nevertheless, Kenanga Research retained its ‘outperform’ rating on the stock while Affin Hwang maintained its ‘hold’ call.