- We maintain our BUY recommendation on Gamuda with an unchanged fair value of RM5.75/share. This pegs the stock at a 10% discount to its NAV/share.

- The local press reported that the Federal government is confident of taking over the water assets of Puncak Niaga Holdings Bhd by the 15 October dateline.

- Energy, Green Technology and Water Ministry secretarygeneral Datuk Loo Took Gee was quoted as saying that the process was moving along as planned.

- What remain are some procedures, which need to be fulfilled before finalising the deal.

- To recap, the Selangor water government had last month, signed four agreements with Pengurusan Aset Air Bhd (PAAB) and Pengurusan Air Selangor Sdn Bhd (Air Selangor).

- The four agreements are:- (i) facilities agreement; (ii) lease agreement; (iii) rights of use agreement; and (iv) settlement agreement.

- These agreements are essentially conditions precedent (CPs) to effect the master agreement that was signed almost a year ago.

- Once these are done, we believe Air Selangor will move in to assert control over Selangor’s water industry, presumably under an asset-light model.

- More importantly, we believe the Federal government’s reassurance will provide added impetus for Gamuda to monetise its water assets.

- Negotiations with the Selangor government on the disposal of its water assets – SPLASH (40%-owned) and Gamuda Water (80%-owned) – have resumed in recent weeks.

- Based on our estimates, Gamuda’s water assets are worth RM1.5bil (RM0.59/share) or ~9% of its NAV.

- We nevertheless believe that prospects of any special dividends from the water disposals appear remote.

- Instead, it would likely be rechanneled to other NAVaccretive areas such as the upcoming Penang Transport Master Plan (PTMP), for which the Gamuda-led SRS Consortium has been appointed as its Project Delivery Partner (PDP).

Source: AmeSecurities Research - 6 Oct 2015