- We maintain BUY call on Gamuda with an unchanged fair value of RM5.25/share, based on an unchanged 5% discount to its sum-of-arts (SOP) value.

- Gamuda announced yesterday that it has reached an agreement with PNB to acquire a 20% stake in KESAS for RM290mil.

- This implies a total value of ~RM1.4mil for a 100% stake in KESAS, which is about 6% higher to our existing valuation for KESAS on an annualised basis.

- The revised offer price – Gamuda’s third – is also 4% higher than the most recent offer made in Dec 2013.

- With this acquisition, Gamuda will now have a controlling 70% stake in KESAS. Earlier, Gamuda had successfully purchased a 20% equity interest from AmCorp for ~RM280mil.

- Back then, Gamuda had topped up its original offer by 12%. It had raised its offer for state-backed Perbadanan Kemajuan Negeri Selangor’s (PKNS) 30% stake from RM375mil to RM420mil, while both PNB and AmCorp’s 20% stakes were respectively lifted by RM30mil to RM280mil.

- Gamuda is also seeking to obtain a waiver from undertaking a mandatory take-over offer of the remaining 30% stake in KESAS that is held by PKNS. The latter has indicated that does not intend to accept this revised offer.

- More importantly, Gamuda’s successful acquisition of PNB’s 30% stake in KESAS this time will help consolidate its position in the highway.

- The move is accretive; we estimate a ~2% lift to Gamuda’s sum-of-parts value (from RM5.25/share to RM5.36/share) and a 3% increase in FY16F-17F FD EPS.

- We maintain our BUY call on Gamuda, and leave our earnings forecast intact for now. While we are encouraged with this latest development, the status of SPLASH remains somewhat uncertain in the near term.

- This is in view of recent news indicating that the both the Federal and state governments intend to re-examine the bulk supply payment to SPLASH.

- As things stand, SPLASH is the sole water concessionaire out of four in Selangor that has yet to accept the take-over offer by the Selangor government. 

Source: AmeSecurities