By Stephanie Jacob
Reports that Gamuda may be looking to submit a proposal to Malaysia Mining Corp (MMC Corp) to jointly launch a takeover bid of Keretapi Tanah Melayu’s (KTMB) in a deal worth more than RM5 billion is generating interest among analysts, despite their continuing neutral outlook on the construction company.
The railway company which has been struggling to make profits since its incorporation despite efforts to lower costs and improve efficiency, is nonetheless an interesting proposition because of its substantial assets and land holdings which are estimated to be worth around RM 50 billion.
In analysing a potential Gamuda-MMC joint venture takeover attempt a Public Investment Bhd analyst report says that in view of the struggling rail company’s financials, the deal is likely to be a prelude to gain access to KTMB other assets and in particular, its undeveloped land. Although these assets are owned by Railway Assets Corp (RAC), KTMB is said to have a strong say in how they are utilised making it a valuable tool.
Furthermore KTMB also has an extensive rail network which links the industrial growth centers in to the seaports in Pulau Pinang, Klang, Pasir Gudang and Tanjung Pelepas while also providing landbridge services for cross border movements of cargo between Malaysia and Thailand, said the research house.
KTMB is wholly owned by the government, and it has been reported in the past that the government is open to proposals for privatisation.
News reports say that the Transport Ministry sent a due diligence letter to MMC about two years ago, and a feasibility study was carried out then, it is also believed that MMC has in the past submitted a takeover proposal to the Ministry of Finance Inc. – however this was rejected as it did not meet the criteria for a takeover at that point.
Gamuda and MMC Corp are already partners in other rail related projects, including as project delivery partners (PDP) for the MRT Sungai Buloh-Kajang Line underground works and for the double-tracking railway project from Ipoh to Padang Besar.
In view of this latest developments, Public Investment is maintaining its neutral outlook on Gamuda at an unchanged target price of RM4.90 pending confirmation of a deal. The bank backed research house says that while overall, the job flow for Gamuda is anticipated to remain good, it opines that the risk-reward for the construction player does not warrant a reevaluation at this juncture.
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