Gamuda Subsidiary May Be Getting Another Rm32 Billion Project From Penang

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(Focus Malaysia) – AFFIN Hwang Capital has maintained a hold call on Gamuda Bhd with a 1% upside following the announcement from the company that it has secured the Penang Transport Master Plan (PTMP) contract.
“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 1H21,” said Affin Hwang Capital analyst Loong Chee Wei.
This follows the announcement that Gamuda’s 60%-owned subsidiary SRS Consortium Sdn Bhd has signed the master agreement with the Penang state government to be appointed as the project delivery partner (PDP) to manage and deliver the PTMP.
According to Loong, the entire PTMP is valued at about RM32 bil for all of the components, which would provide SRS Consortium with an estimated long-term PDP fee income of RM1.6 bil to RM1.84 bil over the 15-to-20-year development period, based on the PDP fee rate of 5% to 5.75%.
The components include public transport components such as rail transport and highways, and the reclamation of Islands A, B and C. A funding plan is also a part of this, which includes the provision of a bridge financing, where SRS Consortium will provide a bridge loan of RM1.3 bil to the Penang state government (the owner) upon terms to be mutually agreed upon to bridge the funding gap for the reclamation of Island A.
“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,” said Loong.
The analyst also believes that the reclamation of Island A will likely be the component to kick off first.
“We understand that the sale of the land, which will be at a premium to the RM8 bil reclamation cost, in the long term will provide the funding for the public transport components,” said Loong.
Gamuda, with its 60% stake, will need to raise RM780 mil for its share of the bridge loan, and Loong estimates Gamuda’s net gearing of 35% at the end of April will increase to a “still reasonable” level of 44% after injecting its share of the loan into SRS Consortium.
The PDP will also assist the state government in procuring financing of about RM1.2 bil to fund the estimated RM2.5 bil cost to reclaim the SMART industrial park component of Island A, according to Loong.
“Completing the SMART park reclamation in about four years will allow the state government to sell the land and raise funding to fund the reclamation of the remaining land on Island A and part finance the RM8 bil Bayan Lepas LRT project,” said Loong, adding that SRS Consortium is aiming to complete the Island A and LRT components by 2030, in line with the state government’s Penang Structure Plan 2030.
In addition to its hold call, Affin Hwang Capital is also maintaining its target price of RM3.75, citing a fair FY21 estimated price-to-earnings ratio of 19x.
At 12.09pm, Gamuda’s shares were last done at RM3.65, down 5 sen, with 1.3 million shares traded.
 

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