[RAM] RAM Ratings assigns AA3(s)/P1(s) ratings to proposed ICP/IMTN programme under Gamuda, reaffirms existing ratings

RAM Ratings has assigned AA3(s)/stable/P1(s) ratings to Gamuda Land (T12) Sdn Bhd’s proposed Islamic MTN/Islamic CP Programme; the Programme features an irrevocable and unconditional guarantee from Gamuda Berhad (or the Group). RAM has also reaffirmed the AA3/stable/P1 ratings of the existing debt programmes under Gamuda.

The reaffirmation reflects Gamuda’s performance and credit metrics in fiscal 2019, which came within our expectations, underscored by its ability to manage profit compression following the substantial reduction in the contract value of its key project – the Klang Valley Mass Rapid Transit System (KVMRT) Line 2. The Group’s debt burden has also eased after having pared down its borrowings through its enlarged cash pile, following the disposal of its associate stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH) in April 2019.

Gamuda’s pre-tax profit (pre-FRS 11 and excluding unusual items) shrank 13% in fiscal 2019 – the result of profit compression from the drastically reduced contract value of the KVMRT Line 2 project and the disposal of SPLASH, although cushioned to some extent by the strong profit showing of its property segment. Gamuda’s borrowings lightened 8% to RM6.0 bil as at end-July 2019, with its respective gearing and net gearing ratios easing to 0.71 and 0.44 times (end-July 2018: 0.81 and 0.55 times). Nonetheless, the Group’s weaker profitability crimped its funds from operations debt cover (FFODC) from 0.20 to 0.16 times over the same period. 

Looking ahead, Gamuda’s profit performance is expected to moderate in the next couple of years due to smaller contributions from KVMRT Line 2 and the impending disposal of its highway concessions to the Government. This disposal will yield RM2.4 bil of proceeds for Gamuda, but will affect its business diversity. The Group intends to set aside a meaningful amount of  the proceeds to be distributed as special dividends and the remainder will be used to fund its working capital requirements for the Penang Transport Master Plan (PTMP)  and potential construction projects in Australia. While details have not been finalised, Gamuda is prepared to set aside RM1.3 bil to fund the working capital required to bridge the timing gap between reclamation and eventual sale of land. Under this scenario, its gross gearing level is still estimated to stay below 0.7 times while its FFODC will come up to at least 0.15 times.

Meanwhile, the Group’s ratings remain supported by its position as a leading local contractor, with a solid track record in big-scale civil engineering projects. As at end-July 2019, Gamuda’s outstanding order book remained robust at RM9.3 bil – adequate to sustain it through the next couple of years. The Group has a diversified business profile and a strong liquidity position. These factors are, however, moderated by its high level of project-concentration risk; KVMRT Line 2 accounts for over 80% of its outstanding order book. With the completion of KVMRT Line 2 in 2022, it is pertinent that the Group replenishes its order book to provide medium-term earnings visibility. Gamuda’s assumption of the turnkey role in the remaining above-ground works for KVMRT Line 2 (relative to the previous project delivery partner (PDP) model) and its responsibility as the PDP under the PTMP also entail higher risks. Its ratings are further constrained by its expanding property inventory and exposure to the cyclical nature of both the construction and property sectors.


Analytical contact
Karin Koh, CFA
(603) 3385 2508
karin@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

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1 Gamuda’s 60%-owned SRS Consortium has been appointed as the project delivery partner (PDP) for the implementation of the PTMP.