"We are mildly positive on the acquisition which would enhance the product offerings of Gamuda within the vicinity despite little accretion to earnings in the immediate term,” said Kenanga Research.
PETALING JAYA: Gamuda Bhd
’s RM360mil cash purchase price for a 532-acre parcel of land next to its 810-acre Gamuda Gardens township in Rawang is deemed as fair, says Kenanga Research.
This is from a land-to-gross development value (GDV) perspective and the price per square foot (sq ft) standpoint, the research house said in its latest report.
Compared with the typical land/GDV transactions of about 15%, Kenanga Research said “this new plot of land implied land-to-GDV of 11% is reasonable, given its larger plot size”.
Gamuda Land Sdn Bhd’s newly acquired land in Rawang in total has a tentative GDV of RM3.3bil, spanning over a 10-year horizon, earmarked for a mixed development, mainly landed residentials.
It is also located close to the Gamuda Gardens development, which still has 620 undeveloped acreages with a remaining GDV of RM7.8bil.
“The new land would be focusing more on the affordable bread-and-butter landed houses versus Gamuda Garden’s higher-end landed houses, given the latter’s more strategic location,” said Kenanga Research.
“Therefore, we are mildly positive on the acquisition which would enhance the product offerings of Gamuda within the vicinity despite little accretion to earnings in the immediate term,” said the research house.
Kenanga Research also noted Gamuda Land’s RM15.50 per sq ft price tag was at a slight discount against Scientex Bhd’s RM17 per sq ft purchase price for its 166.5-acre Rawang land back in 2019.
“With a strengthened balance sheet fresh off its toll highways disposal, Gamuda is currently embarking on an acquisition phase to replace the lost toll contributions and to enhance its returns to equity.”
Post-acquisition of the new land, the research house said Gamuda’s net gearing will increase slightly to 0.16 times from 0.13 times, “which is still well below its self-imposed net gearing ceiling cap of 0.70 times”.
Kenanga Research also made no changes to its financial year 2023 (FY23) earnings on Gamuda based on the unchanged FY23 forecast sales target of RM4.5bil.
This is as “this latest land acquisition will not contribute to the forecast periods”.
Hence, it has maintained an “outperform” call on the stock with a target price of RM5.15 based on Gamuda’s 18 times price-to-earnings ratio for its construction segment.
The research house continues to like Gamuda, given the good chances of securing the Mass Rapid Transit 3 (MRT3) project as well as recent job wins in Australia, Singapore and Taiwan that speak eloquently of its competitiveness in the international market.
Furthermore, Gamuda’s net cash position as of the first quarter of FY23 would provide the group an edge to participate in public infrastructure projects on a private finance initiative (PFI) or deferred payment model, while its strong earnings visibility is underpinned by a record high outstanding order book of RM16bil.
The group is also putting efforts to expedite growth in the renewable energy space in line with global sustainability goals.
Kenanga Research noted the risks for Gamuda include governments cutting back on public infrastructure spending on austerity drives, delays in the rollout of key public infrastructure projects in Malaysia such as the MRT3, and delays in PFI projects due to funding and environmental issues.
