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No immediate rating impact expected from Gamuda’s highway disposals
Published on 03 Nov 2022.
RAM Ratings does not expect Gamuda Berhad’s (Gamuda or the Group) disposal of its highway concessions to Amanat Lebuhraya Rakyat Berhad (ALR) to have any immediate impact on the ratings of debt programmes under Gamuda and its subsidiaries.
The disposal of the highway concessions under Kesas Sdn Bhd, Sistem Penyuraian Trafik KL Barat Sdn Bhd, Lingkaran Trans Kota Sdn Bhd and Syarikat Mengurus Air Banjir & Terowong Sdn Bhd to ALR was completed on 13 October 2022. The disposals will result in net proceeds of RM2.35 bil and book a one-off gain of about RM1 bil. The disposals will reduce Gamuda’s business diversity as the earnings contribution from the highway concessions business is relatively stable. The concessions’ contribution to Gamuda’s pre-tax profit and operating cashflow have been on a declining trend, falling to a respective 12.8% and 9.9% in FY July 2022 (FY Jul 2021: 22.5% and 25.0%).
In our view, the impact from the reduced business diversity and earnings following the disposals are mostly offset by the substantial construction contract awards totalling RM11.6 bil in FY 2022, boosting its order book to RM14 bil as at end-July 2022 (end-July 2021: RM4.55 bil). Furthermore, the new contracts enhance Gamuda’s geographical diversity as overseas contracts made up 76% of its order book (end-July 2021: 27%). We also noted a marked improvement in the performance and earnings of the Group’s property development division. This had been driven mostly by increased demand for its properties in newer local townships, just as its matured developments in Vietnam winds down. Gamuda plans to increase contributions to this division from smaller quick-turnaround developments overseas.
Gamuda’s improved balance sheet strength and liquidity, especially in the last two fiscal years, also helps mitigate the impact from the highway disposals. As at end-July 2022, the group had total debts of RM4.98 bil against cash and marketable securities of RM3.78 bil. Its healthy balance sheet will benefit from the disposal proceeds and one-off gain, although it is likely to be partially offset by a planned RM1 bil special dividend. Nonetheless, the stronger balance sheet is seen to provide significant headroom for new debt funding, especially given the substantial rise in construction jobs and the potential award of large contracts with deferred payment arrangements.
1 With combined limit of RM2 bil
* Bandar Serai Development Sdn Bhd and Gamuda Land (T12) Sdn Bhd are wholly owned by Gamuda.
The ratings reflect Gamuda’s irrevocable and unconditional guarantee on the facilities.
Analytical contacts
Ben Inn
(603) 3385 2510
ben@ram.com.my
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my
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