Selangor's state government, via Kump. Darul Ehsan Bhd (KDEB,) has made a fresh offer  of  RM9.65bn  to  take  over  all  of the state's four water  concession  companies. Puncak  Niaga  acknowledged  receipt  of  the  two  offer  letters  by  fax  but  gave  no details.  Our  back  of  envelope  calculation  suggests  that  the  offers  to  Puncak  and Syabas may total RM6.8bn, but we are unable to assess their actual valuations given the  scant  details.  With  the  polls  getting  closer,  we  rule  out  the  possibility  of  any deals being concluded for now. We keep our Trading BUY call on  Puncak given its undemanding  valuation,  rising  O&G  contribution,  plus  buoyant  sentiments  due  to the takeover offers. Our FV stands at RM2.08.  
 
Fresh  offer. The Malaysian Insider reported that the  Selangor State Government made a fresh  offer  of  RM9.65bn  to  take  over  all  four  water  concession  companies.  Menteri  Besar Tan Sri Khalid Ibrahim said all liabilities of the companies will also be absorbed by the state investment  arm  Kumpulan  Darul  Ehsan  Berhad  (KDEB),  which  will  then  act  as  the  equity owner. KDEB will also form a special purpose vehicle to manage the takeovers. Separately, Puncak  Niaga  told  Bursa  Malaysia  that  it  has  received  two  faxed  letters  from  KDEB  in respect to this matter.

Attractive  offers?  Other  than  the  scant  news  reports  on  the  takeover  offers,  Kumpulan Perangsang Selangor has made two separate announcements in relation to the offers from its  holding  company,  KDEB,  to  acquire  100%  equity  stake  in  Syarikat  Pengeluar  Air Selangor Holdings (SPLASH) and 90.83% interest in Titisan Modal SB for RM1.83bn and RM992.2m  respectively.  Puncak  Niaga's  management  in  its  statement  to  Bursa  Malaysia said it needs to consult its board of directors before making any announcements pertaining to  the  content  of  the  offers.  However,  our  back  of  the  envelop  calculation  shows  that  the combined offer to acquire Puncak Niaga SB and Syabas could be RM6.8bn after stripping out the value of the two other offers. We are not overly excited as believe the amount must first  settle  the company's  borrowings  amounting  to  RM5.58bn  as  at  30  Sep  2012,  the majority  of  which  is  related  to  its  water  business.  Also,  the  offer  for  Syabas  may  have included the value of the 30% minority stake in the concessionaire currently owned by the Selangor  Government  via  KDEB.  We  need  more  details  to  properly  assess  the  actual value of this fresh offer.
 
No  immediate  deal  in  sight. Offer price aside, we suspect the proposed acquisitions are also affected by various uncertainties given the fact that the polls could be called anytime in the next few weeks and this type of M&As could take months to complete. As KDEB is an  investment  arm  of  the  Selangor  State  administration,  the  impending  dissolution  of  the State  Assembly  may  cause  confusion  as  to  the  ultimate  decision  maker  of  this  exercise. Undeniable,  KDEB  has  its  own  professional  management  but  we  believe  this  type  of transactions will need the blessings of the Menteri Besar and possibly the approval of the State Assembly.

Reiterate  Trading  BUY.  While  we  suspect  there  will  be  no  immediate  deal  in  sight  from KDEB's latest offers, we think any offer will serve to warm investors up to Puncak Niaga. We also focus on the company undemanding valuation although we acknowledge that the major  improvements  to  the  company's  bottomline  of  late  were  mainly  attributed  to compensation for the non-implementation of higher water tariffs, which is currently only in the books and will not involve any physical cash inflow until the court delivers its judgment. Nonetheless, the improvement in its P&L is indeed another sentiment booster. In addition, the group's successful move into the lucrative O&G field on top of its rural water supply projects  are  also  sufficient  reasons  for  investors  to  cheer.  Therefore,  we  are  maintaining our Trading BUY recommendation, with the stock's fair value kept at RM2.08. This implies a mere 3x forward FY12 EPS. 

Source: OSK