Gamuda seen as getting fair deal for highways

PETALING JAYA: Gamuda Bhd is seen as getting a fair deal with regard to the disposal of its tolled highways but going forward it will have to search for new businesses with recurring incomes to fill the vacuum.

In the Budget 2020 announcement last Friday, Finance Minister Lim Guan Eng said the Cabinet has approved the takeover of four Klang Valley tolled highways, which will be funded via government-guaranteed borrowings.

The highways are Shah Alam Expressway, Damansara-puchong Expressway, Sprint Expressway and Smart Tunnel.

Analysts expect the previous definitive contract terms to remain unchanged, including the acquisition value of Rm2.36bil and change of ownership (from Gamuda to government) to be finalised by the end of 2019.

Gamuda shares rose only two sen to RM3.77, while its 44%-owned Lingkaran Trans Kota Holdings Bhd gained 15 sen, ending the day at RM4.81.

Gamuda had previously guided that a portion of the proceeds will be redistributed to shareholders and the remainder to be redeployed for working capital for the Penang Transport Masterplan (PTMP) and other projects.

“Due to the shrinking pool of infrastructure-related projects in the country, the company is shifting its focus to tender for building jobs domestically and planning to venture into overseas markets including Australia (via its 50% stake acquisition in Martinus Rail), Singapore, Vietnam and Taiwan for infrastructure-related works,” UOB Kayhian, which has a Hold on the stock said in a note.

At present, the company’s order book stood at Rm10.5bil, inclusive of the turnkey contract for AG MRT2.

Post revision of MRT2, Gamuda with its partner MMC Corp became the turnkey contractor with the contract value reduced to Rm30bil, from Rm39bil while assuming an average profit before tax margin of 8%.

However, Aminvestment Bank said the PTMP project, along with the MRT3 project were not mentioned during the budget speech.

“With reduced recurring toll road earnings (that make up 35%–40% of Gamuda’s total earnings), the defensiveness of Gamuda’s earnings will be eroded, resulting in a higher risk premium,” the research firm said in a note.

It said it is maintaining its underweight call and forecasts considering that valuations of construction stocks, Gamuda included, have run ahead of their fundamentals in the heat of the euphoria sparked by the recent revival of the East Coast Rail Link and Bandar Malaysia projects.