By Lawrence Yong
Gamuda’s plan to erect a new township in Rawang would boost its property portfolio by almost 60% and promises to be its biggest property development in Malaysia, analysts said in mostly glowing reviews of the company’s latest business bid.
The engineering and construction group said on Thursday that it had accepted an option to buy 724.29 acres of Rawang Land at RM620 million from TPPT Sdn Bhd, with the purchase to be completed in the third quarter of 2013. Analysts said this translates to about RM20 per square foot (psf), which is in line with the top-end market prices in the region.
“We are positive on this news and believe that with its solid track record in township developments, such as Kota Kemuning, Bandar Botanic and Horizon Hills, Gamuda will be able to maintain its prospective earnings from the property division,” BIMB Securities Research said.
Even though positive, most analysts maintained their ratings on the stock, pending further details on the mixed development project in Rawang, which was expected to span 16 years. A survey of analysts reports showed that they rated Gamuda’s stock a ‘buy’ with target prices between RM5.20 to RM5.45. Hong Leong Investment Bank (HLIB) Research posted the lowest target price of RM4.42.
Gamuda’s shares were trading at RM4.70 at mid-day today on Bursa Malaysia, up 0.86%. It has tapered off after rallying from about RM4 in May.
“We reiterate our ‘outperform’ rating on Gamuda as we believe it is one of the construction stocks that will benefit most from its robust rail infrastructure in Malaysia,” Kenanga Research said. Gamuda is also the leading developer of the MRT rail project in Malaysia.
Analysts said that the Rawang land, which is 11km south of Rawang Town, looks valuable on paper. With close proximity to major highways and railway systems, the land could potentially generate a GDV of RM5 billion. This would bring Gamuda’s GDV in Malaysia to RM13.6 billion, matching its GDV for projects in Vietnam. (See table).
Alliance Research noted that if factored in at a 20% margin, the Rawang development could start contributing about RM46.9 million a year to the company’s pre-tax profits. The new acquisition would also help shore up Gamuda’s landbank which stood at about 1,650 acres as at March 2013.
HLIB Research noted that the acquisition could raise Gamuda’s debt burden. It estimated that the RM620 million cash outlay to buythe Rawang land would raise Gamuda’s net debt to RM1.6 billion and its gearing ratio will rise to 0.38x versus 0.23x as at Jan 31. HLIB Research said that this was not alarming.
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