Gamuda Bhd (April 19, RM3.08)
Upgrade to hold with a revised target price (TP) of RM3.22. The National Physical Planning Council (NPPC) has approved the reclamation of three islands (Penang South Reclamation Scheme) south of Penang Island. The project was approved with 18 conditions.
The three islands will have a combined area of 17 sq km, comprising Island A (9.3 sq km), Island B (4.45 sq km) and Island C (3.23 sq km).
The reclaimed land, which will belong to the Penang government, will be auctioned off to finance the Penang Transport Master Plan (PTMP). It is estimated that the land bank is expected to generate more than RM70 billion for Penang to fund the PTMP and economic development in the state.
Separately, another component of the PTMP — Pan Island Link 1 (PIL1) — was approved last week by the Department of Environment with 56 conditions. The construction of PIL1 is targeted to start by the middle of 2020.
Meanwhile, the Komtar-Bayan Lepas light rail transit (LRT) line is awaiting conditional approval by the transport ministry and is likely to be obtained soon. The construction of the LRT line is expected to start next year.
Another hurdle to be cleared to get the project off the ground is sourcing of a bridging loan. As it requires time to reclaim the land and get it ready to be monetised, a bridging loan is required to kick-start the PIL1 and the LRT line.
We understand that both the Project Delivery Partner — SRS Consortium, in which Gamuda has a 60% stake — and the state government will come out with their own portions of the funding. This is to enable both the PIL1 and the LRT line to start concurrently.
Gamuda is expected to receive the first tranche payment of RM760 million soon, from the disposal of water concession Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), with the remaining RM260 million to be paid in instalments over nine years. We believe the bulk of the sale proceeds would be reserved to fund the PTMP project. Besides, Gamuda is in discussion with the federal government on the proposed disposal of four highways — Damansara-Puchong Highway (LDP), Sistem Penyuraian Trafik KL Barat (Sprint), Shah Alam Expressway (Kesas) and Stormwater Management and Road Tunnel. If successful, this could raise additional funding for the PTMP, if required. — TA Securities, April 19
This article first appeared in The Edge Financial Daily, on April 22, 2019.