News

Gamuda has raised the offer to Perbadanan Kemajuan Negeri Selangor (PKNS), Permodalan Nasional Bhd (PNB) and Amcorp Properties Bhd to acquire the remaining 70% stake it does not own in KESAS Highway by 12% to RM980m from RM875m (see Figure #1).

Meanwhile, Gamuda has also received an acceptance in principle from PNB in relation to the latest offer which is valid until 30th Dec-13. Of note, Amcorp has also accepted the KESAS offer earlier on.

Comments

Higher offer expected… As highlighted in our report “Buying all of KESAS” dated 6 Nov-13, the higher offer is within our expectations.

Valuation is fair… Based on the latest offer, KESAS is valued at RM1.4bn, which is 5.5% higher than our RM1.3bn valuation for the highway. We believe that we have been conservative in our traffic/expenses assumption and given the potential that the concession will most likely be extended by another 5 years to Aug-28, we are of the view that the offer is fair and will be valuation accretive for Gamuda.

Balance sheet impact… As of 1QFY14, Gamuda has a cash position (including marketable securities) of RM1.47bn and total borrowings of RM2.15bn. With this acquisition, its net debt will rise to RM1.67bn with net gearing rising to 32.9% from 13.5%.

No go from PKNS… Given the sensitive political climate, we do not foresee PKNS accepting the latest offer. Hence, we are expecting Gamuda to end up with a 70% stake in KESAS.

Risks

Execution risk; Failure in securing new projects; Political and regulatory risk; Rising raw material prices; Unexpected downturn in the construction and property cycle; Sharp depreciation of the VND.

Forecasts

Unchanged, pending conclusion of the deal.

Rating

HOLD

Although prospects for Gamuda remains bright from the rollout of the next MRT lines, we believe that much of the positive catalysts have already been factored in its share price. Given that there is less than 10% total upside from our higher revised Target Price, we are maintaining our HOLD call.

Valuation

Due to the additional 40% stake in KESAS, we raise Gamuda’s Target Price by 4.9% to RM4.73 based on Sum- Of-Parts valuation (see Figure #2).

Source: Hong Leong Investment Bank Research - 24 Dec 2013