CGS CIMB has made an “Add” call on Gamuda Bhd with a target price of RM4.25 and believes that the RM5.5 billion offer to Gamuda to take over all of its four highway assets by Amanat Lebuhraya Rakyat Bhd (ALR) would be accepted by Gamuda.
It said that Gamuda’s share of the estimated equity value of RM4.4 billion (cash consideration and other adjustments) for all four highways is RM2.3bn; this is slightly lower (by 1%) compared to the previous equity value of RM2.35billion (imputed in our RNAV calculations for each highway asset). “This cash offer translates into 91 sen/share, or 26% of Gamuda’s market capitalization. Estimated net disposal gain: RM1billion,” it said.
The stockbroking firm said that the flipside to this highway deal is that Gamuda will have to forgo c.20-25% of FY22- 24F recurring net profit (c.RM170m p.a.) from its highway assets (targeted deal completion: in 4-5 months).
However, it said that the highway divestment would further enhance Gamuda’s war chest and provide sufficient headroom in redeploying capital to either the c.RM11billion underground portion of the RM31bn MRT 3 (Circe Line) (tenders to be called on May 22), the RM5billion Penang South Islands (PSI) project (targeted for approvals in 2H2022F), or other private finance initiatives (PFI) proposals, such as the SMART 2 Flood Mitigation tunnel in Selangor and other Green Infrastructure (recurring income); overall significantly reducing the group’s carbon footprint.
The stockbroking firm said that it estimates that the RM2.3 billion equity value (cash consideration) for Gamuda would increase its end-Jan 22 cash by 63% to RM6billion and substantially improve its end-Jan 22 net gearing of 18% to an estimated net cash position of RM611m (NCPS: 24 sen).
CGS CIMB said that it would not discount the possibility of special dividends. “Assuming 10-30% of the RM2.3billion (91 sen/share) cash proceeds are earmarked for this purpose, potential special dividends could range between 18 sen to up to 27 sen/share (5.2-7.9% yield),” it said.