• SPLASH’s shareholders accepted the RM2.55bn offer from Air Selangor. Gamuda is expected to bag RM760m upfront cash and RM260m over the next 9 years in instalments at 5.25% p.a.
• Contrary with yesterday headlines, management clarified that Gamuda Water would continue as the O&M operator albeit it is still in negotiation with Air Selangor on the contract terms.
• We view this development positively as it marks the end of a 10-year dispute with the state government while retaining its exposure to the water supply industry via Gamuda Water.
• Maintain BUY with an SOP-derived TP of RM4.35. We believe fundamentals remain solid with current orderbook providing earnings visibility up to FY21/22F.

Deal Accepted

SPLASH’s shareholders accepted the RM2.55bn offer to purchase 100% equity in the company from Air Selangor. The deal is expected to be finalised by 14 Sep 2018. Consequently, Gamuda is expected to bag RM760m of upfront cash with the remaining amount to be paid in instalments over 9 years at 5.25% p.a.

Gamuda Water to continue as O&M operator

We clarified with management that the change of shareholder (Chart 1 & 2) would not impact Gamuda Water’s current position as the operating and maintenance (O&M) contractor for water treatment plants under SSP3. Nevertheless, negotiation with Air Selangor is underway to finalise contract terms with the new shareholder.

Positive with this development

We view this deal positively as it: i) unlocks the value of SPLASH which is over 10x higher than previous offer, ii) eliminates default risk of RM4.7bn receivables from SYABAS and iii) retained exposure to the water industry via its 80%-owned subsidiary, Gamuda Waters, the O&M contractor for SSP3. We believe this could partially mitigate the RM400m shortfall arising from the 28% discount to NBV.

Reiterate BUY and TP of RM4.35

Maintain BUY with TP of RM4.35. We believe its solid fundamentals ie. sizeable construction orderbook worth RM6.5bn and unbilled sales amounting RM2.2bn provide earnings visibility up to FY21/22F.

Source: BIMB Securities Research - 10 Aug 2018