TA Securities has maintained an underweight recommendation on the construction sector on the grounds of there being “a fair chance” of the four expressway concessionaires being acquired by the Ministry of Finance, as the goals set by the government have been met.
The ministry had offered to acquire Kesas Sdn Bhd, Sistem Penyuraian Trafik KL Barat Sdn Bhd (Sprint), Lingkaran Trans Kota Sdn Bhd (Litrak), and Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd (Smart) in June 2019.
This acquisition has a total purchase consideration of RM6.2 bil, though the total equity value for the four concessionaires comes to RM4.5 bil after deducting indebtedness.
Finance Minister Lim Guan Eng said the Cabinet will finalise its decision on the proposed takeover of Projek Lebuhraya Utara Selatan (PLUS) Malaysia Bhd and the other four concessionaires by this week.
Gamuda Bhd owns stakes in Kesas, Sprint, Litrak, and Smart, with the stakes coming to 70%, 51.8%, 43.6%, and 50% respectively. This means, should the deals materialise, Gamuda stands to be paid RM860 mil, RM450 mil, RM1.02 bil, and RM30 mil for each respective stake, bringing it to a total consideration of RM2.36 bil.
The company has also called off a proposed rights issue of warrants last week, as it is in the midst of finalising the definitive agreement in relation to the offer from the government to acquire the four concessionaires.
“Post-disposal of Splash, which had been completed on April 22, 2019, together with the proposed disposals of the expressways above, we expect to see an earnings gap in Gamuda’s near-term earnings as the segment is largely left with 80%-owned Gamuda Water Sdn Bhd, which we estimate contributes about RM40 mil to RM50 mil of yearly PATAMI (profit after taxes and minority interests) to Gamuda,” says TA Securities analyst Ooi Beng Hooi.
Should the disposals of the expressways be completed by the end of the group’s 2020 financial year on July 31, Ooi estimates Gamuda’s earnings for the 2021 and 2022 financial years to be reduced by 30% and 40.7% respectively.
“Gamuda has also indicated that it would declare a special dividend if the disposals of the highways materialise,” adds Ooi.
Nothing left of Litrak
Through these deals, Litrak Holdings Bhd will also dispose of its 100% stake in Litrak and 50% stake in Sprint, with a total anticipated purchase amount of RM2.75 bil. Should these deals go through, it will stand as a major disposal, according to Ooi.
“The group will be left with immaterial subsidiaries, an immaterial associate and some
assets, including cash at holding level. We think that a majority, if not all, of the sales proceeds are likely to be distributed to the shareholders of Litrak Holdings,” says Ooi.
He maintains a sell recommendation on Gamuda with an unchanged target price of RM3.64. He has downgraded Litrak Holdings to a hold recommendation, maintaining a target price of RM5.21 due to “reduced potential upside after the recent gain in share price”.
The research house also downgraded GDB Holdings Bhd to a hold recommendation, with an unchanged target price of 69 sen following a recent rally in share price.