THERE is certainly much substance in the recent proposal by Gamuda Bhd to have its four tolled highways acquired by a highway trust for RM5.2 bil through monies raised from bond issuances.
The four tolled highways are the Damansara-Puchong Expressway (LDP), Shah Alam Expressway (Kesas), Stormwater Management and Road Tunnel (Smart) and Sistem Penyuraian Trafik KL Barat (Sprint).
Moreover, such initiative is deemed to benefit (i) Gamuda, (ii) the Federal Government, and (iii) to a lesser extent the businesses and citizens concentrated in Kuala Lumpur and Selangor, according to Kenanga Research.
“By undertaking this proposal, we see the Government being the greatest beneficiary as they get to save on toll compensations worth RM5.3 bil over the toll concessions’ remaining tenures while also indirectly help Gamuda raise PFI (private funding initiative) equity to jump start the intended Mass Rapid Transit Line 3 (MRT3) project,” suggested analyst Lum Joe Shen in a construction sector update.
“This means less fiscal burden while stimulating the economy at the same time.”
Unlike the 2019 model which requires the Government to acquire the tolls and be the ultimate guarantor, Kenanga Research opined that the current proposal is much better for the Government’s books as it is risk-free for them.
“Also, the previous 2019 model suggested a congestion charge which would (i) reduce toll rates by 30% during non-peak hours and (ii) free travel during off peak hours,” noted the research house.
“This could be disruptive to traffic flows on competing highways/existing public transport – causing imbalance to the traffic network.”
More importantly, should this proposal be accepted, it opens the doors for other existing toll concessionaires to sell their matured highways (provided attractive terms are offered to bond investors) to channel the proceeds for new areas of growth.
All-in-all, Kenanga Research retained its “overweight” rating on Gamuda with an unchanged target price of RM4.17 as well as maintained an “overweight” outlook on the construction sector.
At the close of this morning’s trading, Gamuda was up 1 sen or 0.29% at RM3.51 with 127,100 shares traded, thus valuing the company at RM8.82 bil. – May 10, 2021
