PETALING JAYA: Analysts are now “more positive” on the takeover offer for the all highways owned by Gamuda Bhd as the offer price is deemed fair or higher than estimates.
However, Gamuda’s share price fell 26 sen or 6.8% to close at RM3.57 today with 33.62 million shares changing hands.
MIDF Research said Gamuda’s effective stakes carry an estimated total value of RM2.4 billion, equivalent to 95.6 sen a share.
“The consideration comprises cash, which we think could likely be disbursed in the form of an upfront payment that is followed by gradual instalments. Notably, we think the offer price was reasonable as the amount did not deviate much from our previous estimates at RM2.50 billion.
“Prior to the offer announcement, we viewed the potential takeover rather negatively. This was due to the possibility of the highways being valued at construction cost instead of discounted cash flow, which would likely ignore its economic value, hence undervaluing the asset. However, based on the offer price revealed, it was likely that the price was reached based on the market norms,” the research house said.
Kenanga Research is mildly positive on the offer price proposed by the government for the takeover of the highways given that it is slightly above its expectation by RM135.4 million or 4 sen per share.
“We believe that the positive variance could come from the extended concession period from Kesas which we previously did not include into our valuation.
“In terms of gearing, we would expect its net gearing to come down from 0.6 to 0.3 times upon completion of the sale of these highways,” the research house said in a report today.
While Kenanga is positive with the highway privatisation deal, it reiterated an “underperform” call on Gamuda with a higher target price of RM2.90 (from RM2.85) as it factors in the acquisition price differential.
“We believe that the positives have been fully factored in its recent share price rally. Year-to-date, the stock has risen by 64% and we believe that it is a good opportunity to sell on strength.”
MIDF noted that Gamuda’s cash position will be significantly enhanced upon successful acquisition of its four toll highways by the government, providing significant liquidity to its asset profile.
“We opine the potential cash proceeds could be utilised for other projects, which includes the funding its large infrastructure projects in Penang. At this juncture, we do not rule out the prospect of special dividend as to compensate for the loss in a stable income source going ahead.”
It added that on operational fronts, a significant loss in recurring income is inevitable, leaving the company with a rather cyclical business model which comprises construction and property.
MIDF understands that Gamuda’s management is zeroing in to acquire or invest in new “recurring income” businesses in the future. To recall, it estimated that the highway concessions (pending divestments) have generated about an average of RM200 million of stable earnings on annual basis. At pretax profit level, this would account for 25-30% of its total annual earnings.
“Taking the offer would leave a clear impact to its bottom lines, leaving a vacuum to its long-term recurring income.”
