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RAM Ratings affirms Gamuda’s AA3/Stable/P1 issue ratings
Published on 22 Jan 2024.
RAM Ratings has affirmed the 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 (see table below). The debt facilities of the subsidiaries are irrevocably and unconditionally guaranteed by the Group. Meanwhile, we have received confirmation that Gamuda’s RM800 mil Islamic Medium-Term Notes Programme (2008/2028) was cancelled on 9 January 2024. As such, we have withdrawn the AA3/Stable rating of the programme and no longer have any rating obligation in respect of the facility.
The rating affirmations are premised on Gamuda’s strengthening business profile which is envisaged to provide strong earnings and cash flow visibility over the medium term. Continued expansion of its construction order book, estimated at RM26 bil as at end-2023 (end-July 2022: RM13.97 bil), and unbilled property sales totalling RM6.7 bil as at end-July 2023 afford a robust earnings outlook. A substantial portion of contract awards from advanced and developed countries is a testament to the Group’s capability, track record and competitiveness. These credit strengths however, are balanced by Gamuda’s considerable exposure to execution and demand risks from the current and anticipated aggressive growth of its construction and property development divisions and expected thinner margins for the medium term.
On the back of its stronger performing construction segment, particularly in Australia, Gamuda’s top line (including incorporated joint ventures) rose 41.1% to RM9.08 bil in FY July 2023 while its pre-tax profit grew at a slower 17.8% to RM1.06 bil. Net profit doubled to RM2.01 bil after the recognition of a RM1.1 bil gain from the disposal of highway concessions. The loss of business diversity from the sale of the Group’s highway concessions is partially offset by increased geographical diversity, which is expected to see foreign operations accounting for about half of its bottom line.
Currently undergoing an unprecedented growth, Gamuda expects revenue to double in FY Jul 2024. Even with substantial funding requirements on multiple business fronts, the Group’s balance sheet is anticipated to remain manageable. Total borrowings are expected to peak at close to RM8 bil within the next three years, with gearing and net gearing increasing to not more than 0.70 times and 0.45 times, respectively (end-July 2023: RM6.98 bil, 0.64 times and 0.26 times, respectively). Given rising debts, funds from operations debt coverage is projected to slip slightly this year (FY Jul 2023: 0.11 times) before improving to above 0.15 times by FY Jul 2026.
Fast-paced expansion in multiple countries exposes Gamuda to substantial execution and demand risks. Integrating its recently acquired construction business in Australia that comes with more than 1,000 local staff and RM4.4 bil of inherited contracts will be a challenge. In view of the Group’s focus on large-scale infrastructure jobs, a lumpy order book may give rise to earnings volatility. The property segment’s planned quick-turnaround projects in Vietnam and the UK, with total gross development value of more than RM15 bil, make the Group susceptible to significant demand risk, especially amidst an unfavourable economy.
Analytical contacts
Ben Inn
(603) 3385 2510
ben@ram.com.my
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
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Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
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