[RAM] RAM Ratings reaffirms Gamuda's AA3/Stable/P1 issue ratings; proposed RM2 bil ICP Programme assigned P1 rating

RAM Ratings has reaffirmed the ratings of debt programmes under Gamuda Berhad (Gamuda or the Group) and its subsidiaries, Bandar Serai Development Sdn Bhd and Gamuda Land (T12) Sdn Bhd. We have concurrently assigned a P1 rating to the Group’s proposed RM2 bil Islamic Commercial Papers (ICP) Programme (2022/2029). The proposed ICP Programme will replace an existing programme which expires next year. At the same time, the P1(s) rating of Bandar Serai’s RM500 mil ICP Programme (2014/2021) have been withdrawn following its expiry in October 2021. The debt facilities of Gamuda’s subsidiaries are irrevocably and unconditionally guaranteed by the Group.



The reaffirmation of the ratings is based on our view that Gamuda is on the path to recovery as pandemic-related restrictions ease. After a difficult FY Jul 2020 and 2021, the Group’s operational performance is expected to gradually improve, supported by the rising prominence of the property division. The construction segment however may remain dampened by the slow pace of awards for new, large projects. Gamuda ended FY Jul 2021 with a stronger balance sheet amid the challenges of a protracted pandemic. We anticipate its financial profile to stay supportive of the ratings.

Gamuda’s top line contracted by 26.3% to RM5.02 bil in FY Jul 2021 (pre-FRS 11; FY Jul 2020: RM6.80 bil), weighed by an almost full-year impact from the pandemic and near completion of the Klang Valley Mass Rapid Transit (KVMRT) Line 2 project. The Group’s highway concessions also saw extended periods of weak traffic volumes. Thanks to stronger earnings from the KVMRT Line 2 project and developments in Vietnam, Gamuda posted a healthier bottom line of RM852.13 mil, a 6.2% uptick (FY Jul 2020: RM802.20 mil, excluding RM148.10 mil impairment). Rigorous COVID-19 control measures allowed the Group to maintain work progress despite outbreaks of more severe variants of the virus. 

Gamuda’s outstanding order book continued to reduce, standing at RM4.55 bil as at end-July 2021, down from a peak of RM11.55 bil as at end-July 2018 given delays in the rollout of new infrastructure projects even as key contracts maintain steady progress. With 65% of outstanding orders due to be completed by 2022 – including KVMRT Line 2 – the Group’s medium-term earnings visibility will be dependent on how soon it can replenish its order book. We expect Gamuda’s solid track record and expertise, especially in rail and tunnelling works, to secure the Group significant contracts domestically and abroad in the months ahead. A healthy balance sheet also gives it an edge in tenders for large infrastructure jobs, more so if these require private funding.

Over the next three years, the increasing prominence of the property division is anticipated to drive Gamuda’s operational performance. The segment’s growth is backed by robust demand in Vietnam and a pick-up in the pace of construction of the Group’s ongoing developments. The completion of land acquisitions in Vietnam will support other launches and the division’s growth in the country. The Group plans to step up launches in newer local townships that are benefiting from a shifting preference for landed properties. 

Gamuda enters its recovery phase with a stronger balance sheet. Its cash pile continued to expand, amounting to RM5.51 bil as at end-July 2021 (end-July 2020: RM4.17 bil), boosted by the securitisation of receivables. A lighter debt load of RM5.89 bil as at the same date translated into gearing and net gearing ratios of 0.62 times and 0.04 times, respectively (end-July 2020: RM6.19 bil, 0.69 times and 0.23 times). The Group’s cash holdings will be able to fund significant working capital requirements and land banking in Vietnam. Assuming substantial funding is not required for large infrastructure projects, we expect Gamuda’s balance sheet to remain sound over the next three years with gearing and net gearing staying below a respective 0.50 times and 0.30 times. Funds from operations debt coverage having inched up to 0.15 times in fiscal 2021 (fiscal 2020: 0.12 times), is envisaged to linger at about 0.20 times over the next three years.

The construction, property and concession businesses have contributed fairly equally to pre-tax profit. Although some segments are related, the Group enjoys meaningful diversification benefits. Furthermore, varying restrictions across countries in which Gamuda operates cushioned the overall COVID-19 impact. Discussions with the Malaysian government on the disposal of Gamuda’s highway concessions are still ongoing and are not expected to be concluded in the medium term. The sale of the concessions will reduce its business diversity and markedly impact overall earnings, especially if the construction segment slows down. 


Analytical contacts
Ben Inn
(603) 3385 2510
ben@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my