Gamuda; Buy; RM4.81
Price Target: RM5.40; GAM MK

Kumpulan Perangsang Selangor (KPS) announced it has received an offer by the Selangor State Government to purchase 100% equity stake in Splash for a total equity value of RM1.83bn. KPS owns 30% in Splash while the other shareholders are Gamuda (40%) and Tan Sri Wan Azmi (30%). Hence, we expect Gamuda to make a similar announcement today.

The purchase consideration is similar to the last offer by the Selangor State in February 2013 which is based on a return on equity of 12% per annum and all outstanding water related debts to be assumed by the State. The deadline for acceptance is by 4 December 2013 and we expect all three shareholders to agree to this offer.

Gamuda’s 40% stake works out to RM733.8m or RM0.32/ share. The company has committed to pay a substantial amount in dividends. Assuming a 50% payout, investors can look forward to a one off yield of 3.3%. The next catalyst for Gamuda is cabinet approval and PDP appointment for MRT Line 2 which we expect latest by 1Q14.

We expect some conclusion to this long standing Selangor State water restructuring but this is still dependent on the acceptance of offers from the other concession holders. We maintain our BUY rating and SOP-derived TP of RM5.40. 

Source: HwangDBS Research - 22 Nov 2013