News

Kumpulan Darul Ehsan Bhd (KDEB) has offered RM1,834.6m to acquire Syarikat Pengeluar Air Selangor Holdings Bhd’s (SPLASH) equity. Gamuda has a 40% stake in SPLASH and the deal is expected to be concluded by 10 Mar-14.

Comments

A fairer offer… The latest offer of RM1.8bn by KDEB for SPLASH’s equity stake is much higher than the RM250.6m offered previously. It is also the value that has been guided previously.

Turning POSITIVE… Following the MOU signed between both Federal and State Government to resolve the water issue, we have turned POSITIVE at the latest offer and believe that it will go through.

32 sen/share… Based on Gamuda’s 40% stake in SPLASH, the offer translates to RM733.8m (~32 sen/share) for the company. The valuation is ~25% lower than our ascribed valuation of RM984m (41 sen/share) for SPLASH. Given the delicate water situation, we believe that Gamuda will accept the offer.

Gamuda Watar… Gamuda is also operation and maintenance (O&M) operator for SPLASH through its 80%- subsidiary Gamuda Watar. Hence, we believe that Gamuda will also be seeking assurance to continue on as the O&M operator.

Don’t expect bumper payment… The proceeds raised from SLASH’s disposal will be used to acquire Amcorp Properties 20% stake in KESAS for RM280m, while the balance will go to Gamuda’s planned land banking exercise in Iskandar, Klang Valley and East Malaysia which was earmarked at RM1bn/year.

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 Target Price, we are maintaining our HOLD call.

Valuation

Maintain Target Price of RM4.62 based on Sum-of-Parts valuation (see Figure #1).

Source: Hong Leong Investment Bank Research - 28 Feb 2014