What's on the plate?So far, only KPS made a detail announcement to Bursa yesterday. There was no announcement made by Gamuda (for its SPLASH unit) at all while there were no details in the announcement made by Puncak (in terms of pricing and terms) as well. According to the KPS announcement, SSG has made an offer to buy its stake in SPLASH and TMSB for RM1.8b and RM992m respectively for both its water asset and equity values. As compared to SSG's previous offer, we note that the terms and conditions of the current are more favorable to the water concessionaires as SSG will assume all the debts held by the acquired companies. 

Better offer price?  Puncak has yet to announce details of the offer. Based on the RM9.65b price tag, the combined offer price for Puncak Niaga and  SYABAS could be at RM6.8b. This would be higher than the previous offer it received from SSG (second offer) and Gamuda's revised offer (third offer). To recap, based on the second offer from SSG, Puncak and SYABAS were valued at RM1.9b and RM3.3b respectively (total price of RM5.3b). However, the offer from Gamuda valued Puncak Niaga and SYABAS at RM1.9b and RM4.1b respectively (total price of RM6.0b). We think that the current offer price from SSG could be more favourable to Puncak. The implied valuations for Puncak from the second and third offers were at RM2.47 and RM2.94, respectively. Based on the current RM6.8b price tag and Puncak's current net debt at RM4.2b, Puncak could be valued at RM3.34 (after deducting the 30% SSG stake in SYABAS). However, since the details are still vague, the valuation is still uncertain at this juncture.     

Good offer for SPLASH.  The SSG offer valued SPLASH's equity value at RM1.8b, comprising of RM250m for its equity and RM1.6b for the value of the water asset. Assuming SPLASH's debt is at RM1.8b, the total offer value for SPLASH is RM3.6b. This is much better than SSG's second offer to SPLASH at RM2.9b.  

Risk. According to the offer details, TMSB and SPLASH will have to conclude their acceptances before the 6 March 2013. We assume that the same condition would also apply to  Puncak and SYABAS.  Based on market talk, the general election date could be around the corner and this could bring more pressure on the water concessionaires to make a decision either to accept or decline the offer.  

   

Trading interest to emerge on Puncak and Gamuda.  We expect this news will spur more interest in Puncak and Gamuda shares. We are maintaining our OUTPERFORM recommendation for Puncak and Gamuda with unchanged Target Prices of RM2.85 and RM4.29 respectively. Our Target Price on Puncak is based on a SOP valuation and we value Puncak's water business at RM2.17. As for Gamuda, it remained as our Top Pick for the construction sector due to its strong order book size and also for the potential take-over of its water and expressway businesses.   

Source: Kenanga