Published on 11 Jan 2018.
RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Gamuda Berhad (or the Group)’s debt programmes and that of its wholly owned subsidiary, Bandar Serai Development Sdn Bhd (Table 1 below).
The reaffirmation reflects Gamuda’s position as a leading local contractor, with a strong niche in large-scale civil-engineering projects, which will stand it in good stead in securing future sizeable infrastructure jobs. Gamuda successfully delivered Line 1 of the Klang Valley Mass Rapid Transit System (KVMRT) 2 weeks ahead of the completion date, with no cost overruns, solidifying its position as project-delivery partner. Its outstanding order book remained robust at RM7.8 billion as at end-July 2017, comprising mainly the underground work contract for Line 2 of the KVMRT; these jobs are adequate to sustain it over the next few years.
Meanwhile, Gamuda elicited RM2.4 billion of property sales in fiscal 2017 – a respectable 14% higher y-o-y. Strong sales of its projects in Vietnam (on the back of a robust property market) had cushioned weaker sales locally. Subdued market conditions in Malaysia had affected the take-up rates of the Group’s existing projects. Additionally, large new township projects rolled out in fiscal 2017 amid the challenging environment, had demonstrated a mixed performance so far. These projects, given their nascent stages, will require a gestation period before they start contributing to the Group. In the meantime, Gamuda’s unbilled sales of about RM2 billion as at end-July 2017 will support earnings visibility over the next 1-2 years.
Gamuda’s revenue (pre-FRS 111) surged 37% y-o-y to RM5.7 billion in FY July 2017 on the back of a solid showing by its construction and property segments. Its pre-tax profit (pre-FRS 11 and after excluding provision for impairment) was also higher, climbing 16% y-o-y – a more moderate pace due to margin compression at its property division. The Group’s overall results had come in better than anticipated.
That said, the Group’s debt level (pre-FRS 11) rose markedly to RM6 billion in fiscal 2017 (fiscal 2016: RM5 billion) to fund the rollout of various large new township projects locally. This pushed its gross gearing ratio (pre-FRS 11) to 0.77 times, although net gearing ratio after considering its large cash balance and liquid instruments was manageable at 0.56 times. Nevertheless, Gamuda’s debt load is expected to taper off on account of stronger construction and property earnings and as capex for land acquisition eases. Gross gearing is estimated to reduce to 0.7 times in the next 1-2 years, while funds from operations debt coverage is projected to recover to above 0.15 times even after incorporating additional debts to be incurred for new construction and property projects (fiscal 2017: 0.13 times).
Table 1: Issue ratings of Gamuda and Bandar Serai Development
Entity | Issue | Rating |
Gamuda Berhad |
(with combined limit of RM800 million)
(with combined limit of RM5 billion) | AA3/Stable AA3/Stable P1 AA3/Stable P1 |
Bandar Serai Development Sdn Bhd |
(with combined limit of RM1 billion) | AA3(s)/Stable P1(s) |
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1Pre-FRS 11 figures reflect the proportionate consolidation of Gamuda’s incorporated joint ventures.
Analytical contact
Karin Koh, CFA
(603) 7628 1174
karin@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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