Analysts positive on offer for Gamuda, Litrak highways

Gamuda’s proposal back in 2021 to put its 4 highway concessions in a trust company has finally come to fruition with offer from ALR 


ANALYSTS are taking a positive stance on Gamuda Bhd and Lingkaran Trans Kota Holdings Bhd (Litrak) following the takeover offer for four highways made by Amanat Lebuhraya Rakyat Bhd (ALR) worth RM5.5 billion in enterprise value in a bid to maintain toll rates. 

Public Investment Bank Bhd (PublicInvest) stated Gamuda’s equity value of RM2.33 billion is considered fair and in line with its valuation of RM2.28 billion for the four highways, though slightly lower than Pakatan Harapan’s RM2.36 billion offer in 2019. 

The bank noted overall it is positive on the proposed development despite the fact Gamuda will have a loss of recurring earnings of RM170 million yearly. 

“The group will be able to unlock the value of its highway concessions from this deal, allowing the group to strengthen its balance sheet and lower its gearing, in order to better stomach upcoming mega infrastructure projects,” PublicInvest stated in a research note yesterday. 

Gamuda’s proposal to the federal government back in 2021 to put its four highway concessions namely Kesas Sdn Bhd, Litrak, Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd and Sistem Penyuraian Trafik KL Barat Sdn Bhd (SPRINT) in a trust company has finally come to fruition with the receipt of offer from ALR, a private “not-for-profit” company established to assume ownership of the highway concessions. 

ALR’s offer of RM5.5 billion includes all borrowings tied to the concessions, with an equity value of RM4.4 billion is deemed acceptable given Gamuda’s eager interest to dispose of all its highway concessions. 

The bank added this is due to increasing uncertainty of compensation receivables from the government in relation to its tight finances; attaining net cash position of RM600 million to better stomach upcoming mega infrastructure projects such as Mass Rapid Transit 3 (MRT3) and Island A of Penang South Reclamation project. 

The offer remains valid until April 30, 2022. 

“Gamuda’s effective stake in these four-highway concessions would be at RM2.3 billion in which, the management has asserted it will utilise the proceeds from the disposal for reinvestments, reward shareholders and narrow its borrowings,” it noted. 

PublicInvest has maintained its ‘Outperform’ call on Gamuda with a target price (TP) of RM4.09, pending completion of the deal. 

CGS-CIMB Securities Sdn Bhd noted the equity value of RM2.3 billion for Gamuda is 1% lower than the previous equity value of RM2.35 billion assumed on a revised net asset value calculations for each highway asset. 

Its analyst Sharizan Rosely said the equity value will increase Gamuda’s cash position by 63% to RM6 billion and significantly improve its net gearing ratio from 18% to an estimated net cash position of RM611 million. 

“This cash offer translates into 91 sen per share or 26% of Gamuda’s market capitalisation. 

“We believe the offer will be accepted as it provides closure to the long-drawn-out highway divestment scheme,” he wrote in a research note yesterday. 

He added the highway trust model is deemed a win-win deal for Gamuda, the government and highway users over the longer run. 

MIDF Amanah Investment Bank Bhd stated the disposal of the concessionaires to ALR allows Gamuda to unlock value of its highway concessions. 

“We are upgrading our recommendation on Gamuda to ‘Buy’ call with an increased TP of RM3.89 from RM3.63 previously, pegging a price-earnings ratio of 15 times to the group’s financial year 2022 (FY22) earnings per share of 25.9 sen. 

“This is to reflect the positive news flows that would potentially emerge from MRT3 tenders being called next month, special dividend from the highway concessions’ disposal, Gamuda’s aggressiveness in doubling its order book and its planned entry into the renewable energy sector, which may be cushioned by its lower expected earnings in FY23,” MIDF stated. 

MIDF added Gamuda’s current orderbook remains strong at RM10.4 billion and it expects the group to be the front runner for the lion’s share of MRT3 contracts. 

In a separate note, MIDF maintained its ‘Buy’ call on Litrak with a revised TP of RM5.08, reflecting the offer price by ALR, assuming the deal materialises. 

MIDF believes the offer is an attractive proposition for the shareholders. 

“The total anticipated equity value of RM2.7 billion for both highway concessions translates into an effective offer price of RM5 per share with a price-to-book value (P/BV) of 2.13 times, a 25% premium to its 12-month trailing P/BV of 1.7 times. 

“Besides, the current offer price constitutes a 10% premium to our dividend discount model-derived TP of RM4.60. 

“In comparison, the deal offered by the Finance Ministry to Litrak in June 2019 had an offer price of RM5.21 per share which represents a P/BV of 2.96 times,” it noted. 

MIDF added due to the attractive upside, it believes investors should accept the offer as an exit strategy given the lack of catalyst for Damansara-Puchong Expressway and SPRINT highways. 

It added the average weekday tollable traffic for these highways has been on a downtrend in the past few years due to the increase in ridership of public transportation especially the Light Rail Transit (LRT) and MRT. 

MIDF pointed out the availability of RapidKL’s monthly pass called My50 that offers unlimited rides on the LRT, MRT, Monorail, bus rapid transit and MRT feeder bus services in Klang Valley will continue to encourage the use of public transportation in the near term. 


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