AmResearch
GAMUDA - Transfer of water assets within 60 days
Investment Highlights
· We maintain our BUY call on Gamuda with an unchanged fair value of RM5.80/share, pegged at a 10% discount to its
NAV/share. The local press reported that the transfer of water assets from the Selangor government to Pengurusan Aset Air Bhd (PAAB) will be completed within 60 days.
· Discussions with Federal-backed PAAB will also be held during this period to determine the list of assets that will
be leased by the Selangor government, in addition to other terms and conditions of agreement.
· Crucially, the Selangor government has also agreed to transfer four water assets in exchange for another two – i.e. in Semenyih and Bukit Nenas – which had earlier been a point of dispute.
· We understand that these four assets, which include treatment plants and dams, would have the same value as the assets in Semenyih and Bukit Nenas.
· The transfer exercise is part of supplementary agreement inked between the Federal and Selangor governments on 11 July. The accord represents an additional but vital part to the master agreement that was signed on 12 September last year.
· This breakthrough has trigger renewed hopes of resumption in negotiations for 40%-owned SPLASH by year-end, we believe.
· Our preliminary estimates indicate that the disposal of its water assets could lead to a c.10% decline in FY17F earnings.
· On the flipside, we reckon the bulk of proceeds from any disposal could likely be redeployed towards more NAVaccretive
deals (e.g. more landbanking moves) or to degear its balance sheet.
· Also, we do not discount the possibility of Gamuda being in a position to bid for future water O&M works in the state, if these are outsourced or opened up to private entities.
· We maintain our earnings forecast for now pending more updates on the water issue. We had earlier highlighted that a breakthrough in the water gridlock can be one of three event catalysts in 3Q15 that will under underpin share price performance.
· Having signed the Project Delivery Partner (PDP) agreement for the MRT Line 2 (via the MMC-Gamuda JV), the award of the PDP for the Penang Transport Master Plan (PTMP) is up next. This suggests more upside to Gamuda’s NAV.
Source: AmeSecurities Research - 20 Jul 2015
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