PETALING JAYA: The proposal to sell Gamuda BhdThe four urban highway assets of a private non-profit company – Amanat Lebuhraya Rakyat Bhd (ALR) – for RM5.5bil is an opportunity for the former to unlock value, while its shareholders could be rewarded with a special distribution of dividends.
Based on Gamuda’s respective stakes in the four highways, it will receive a total of RM2.3 billion in proceeds from this sale, with RM1 billion recognized as one-time gains.
According to research firms, the management of the infrastructure and real estate development company had indicated that the proceeds would be used to reward shareholders, reinvest and reduce borrowings.
In addition, the group had also indicated that it was currently seeking concessions in the field of green or renewable energies to reconstitute a sustainable recurring income.
After the toll sale, the group will also transform into a net cash company with net cash of RM600m, from net debt of RM1.7bn in the second quarter of FY2022 (FY22 )
On Monday, Gamuda received a conditional offer letter from ALR to acquire four toll roads, namely Kesas Sdn Bhd; System Penyuraian Trafik KL Barat Sdn Bhd (Sprint); Lingkaran Trans Kota Sdn Bhd (Litrak); and Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd (Smart), at an enterprise value of RM5.48bil.
Gamuda owns 70% of Kesas Highway, 43.2% of Litrak, 20% of Sprint and 50% of Smart.
“The flip side of this road deal is that Gamuda will have to give up around 20% to 35% of the projected recurring net profit for FY22-24 (around RM170 million per annum) from its road assets.
“However, the freeway divestiture will further strengthen Gamuda’s war chest and provide ample headroom to redeploy capital to the underground portion of the RM31bil 3 Circle Line Mass Rapid Transit (MRT) project where the tenders to be launched in May; the RM5bil Penang South Islands (PSI) project which is expected to be approved in the second half of 2022, or other Private Finance Initiative (PFI) proposals,” said CGS-CIMB Research.
The research firm said that assuming 10% to 30% of the cash proceeds of RM2.3 billion were allocated to a potential special dividend, it could range from 18 sen to 27 sen per share, which is would result in a return of 5.2% to 7.9%.
Meanwhile, Kenanga Research said RM2.3bil was above its estimated valuation of RM2.1bil for toll roads. He believes the deal is likely to go through, unlike the 2019 deal proposed by the Ministry of Finance (MoF) at the time, which faced a backlash.
Indeed, the government is not a party to this transaction, unlike the previous agreement in which it was required to provide government guarantees.
“Furthermore, this agreement saves the government RM4.3 billion on toll offsets required for the remainder of these four concessions, and the public benefits from fixed toll charges throughout the remaining duration of the tolls. “, he added.
Based on a traffic volume of 1.7% on a compound annual growth rate, analysts noted that the concession and LRA debts should be fully paid off by mid-2032.
This means an early end to the Sprint and Smart concessions from their existing end dates and a less than four-year concession extension for Kesas, with a less than two-year extension for the Lebuhraya Damansara-Puchong Expressway (LDP).
By comparison, the Finance Ministry’s offer in 2019 had involved an unspecified end to toll dates, an analyst added.
Shares of Gamuda closed eight sen higher at RM3.57, while Litrak jumped 52 sen to RM4.55 yesterday.
In a report, MIDF Research believes Litrak investors “should accept the offer as an exit strategy, given the lack of catalysts for LDP and Sprint.”
He said the average weekday revenue traffic for these highways has been on a downward trend over the past few years due to the increase in public transport ridership, particularly light rail and MRT. .