Published on 21 Dec 2020.
RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of debt programmes under Gamuda Berhad (Gamuda or the Group) and its subsidiaries, Bandar Serai Development Sdn Bhd and Gamuda Land (T12) Sdn Bhd. The subsidiaries’ debt programmes features an irrevocable and unconditional guarantee from Gamuda. The reaffirmation of the ratings is premised on our view that it will remain supported by the Group’s operational performance and financial profile. After a challenging FY Jul 2020, the performance of Gamuda’s key segments is anticipated to gradually improve over the next three years amid moderating debt levels.
While Gamuda’s top line slipped 5.2% y-o-y to RM6.80 bil for FY Jul 2020, its pre-tax earnings fell 17.5% to RM797.30 mil (FY Jul 2019: RM7.18 bil and RM965.90 mil, respectively) (pre-FRS 11 and excluding unusual items) as the global outbreak of COVID-19 impacted operations in all segments. The slower progress of construction and property projects led to lower revenue and profit recognition while traffic volumes registered by the highway concessions plunged during the movement control order (MCO). We expect the Group’s operational performance to gradually improve over the next three years. It is well placed to secure the Klang Valley Mass Rapid Transit (KVMRT) Line 3 project and significant overseas contracts. These are anticipated to commence in fiscal 2022, just as the construction of KVMRT Line 2 approaches completion. Elsewhere, the property segment will be supported by robust sales in Vietnam while take-up rates at newer local townships should pick up in pace.
Gamuda has a healthy financial profile. As at end-July 2020, debt level inched up to RM6.19 bil, resulting in a gearing ratio of 0.69 times (end-July 2019: RM6.02 bil and 0.71 times). As the Group’s cash balance ballooned to RM4.17 bil as at the same date, net gearing markedly eased to 0.23 times (end-July 2019: 0.44 times). The sizable cash balance against short-term debts of RM2.60 bil underpins its strong liquidity. Although Gamuda’ funds from operations (FFO) debt cover fell to 0.12 times in fiscal 2020 given weaker earnings amidst the pandemic (fiscal 2019: 0.16 times), the same measure on a net debt basis came in at a sturdy 0.35 times (fiscal 2019: 0.25 times).
In the next three years, Gamuda plans to trim its debts to a range of between RM5 bil to RM6 bil, while cash holdings are expected to decline consequent to being utilised for land banking and working capital purposes. Gearing and net gearing are likely to stay below 0.60 times and 0.45 times, respectively. In view of anticipated improvements in earnings, FFO debt cover is expected to gradually climb to 0.2 times within the next three years, while FFO net debt cover will stay above 0.25 times.
The Group’s ratings remain supported by its solid reputation in the construction sector, both locally and overseas. Gamuda specialises in large-scale infrastructure projects, particularly rail and tunnelling jobs. Although its order book has been diminishing in the last couple of years to a still sizeable RM6.9 bil as at end-July 2020 (end-July 2019: RM9.3 bil), it has a good chance of replenishing with upcoming large local and foreign rail-related projects. The Group has a diversified business profile, albeit reduced by potential highway disposals. These factors are, however, moderated by its high level of project-concentration risk; KVMRT accounts for 67% of its outstanding order book. Gamuda’s ratings are further constrained by its expanding property inventory and exposure to the cyclical nature of both the construction and property sectors.
(with combined limit of RM5 bil)
Bandar Serai Development Sdn Bhd
(with combined limit of RM1 bil)
Gamuda Land (T12) Sdn Bhd
(with combined limit of RM2 bil)
* The ratings reflect irrevocable and unconditional guarantees on the facilities, extended by Gamuda.
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Ratings on Gamuda Berhad