Gamuda ups offer for Kesas by 12%

by **Cals** Fri 27 Dec 2013, 16:30

Business & Markets 2013

Written by Public IB Research

Friday, 27 December 2013 10:05

Gamuda Bhd
(Dec 24, RM4.67)
Maintain neutral at RM4.67 with a target price of RM4.90: Gamuda revised its offer price for the stake it does not own in Kesas Holdings Bhd to RM980 million (from RM875 million previously or up by 12%). To recap, Gamuda owns 30% of Kesas and the offer effectively puts the market value of the highway concessionaire at RM1.4 billion.

Both Amcorp Properties Bhd and Permodalan Nasional Bhd (PNB), which own a 20% stake each, have accepted the offer in principle with the other shareholder, Perbadanan Kemajuan Negeri Selangor (PKNS, 30% stake) expected to accept the improved offer too, in our view. The offer is valid for acceptance until Jan 18, 2014.

Kesas has a concession period of 28 years and nine months — valid till Aug 18, 2023 — for the Kesas highway, which was built in 1994 and has a total length of 34.5km. It links the KL-Seremban highway to Pandamaran in Port Klang. We understand that Kesas’ traffic volume currently registers healthy growth despite increasing competition from new highways such as the New Pantai Expressway (NPE).

Average daily traffic increased by 8.9%, 7.9% and 5.5% in financial year 2011 (FY11), FY12 and FY13 respectively. The revised offer which values Kesas at RM1.4 billion is about 5% higher than our estimated value for Kesas but we believe it might be due to our traffic growth assumption, which is probably on the low side.

Kesas is contributing about RM30 million to RM40 million net income to the group in our estimates and the deal can potentially increase the earnings in view of the proposed deal to dispose of its water assets (albeit the recent deadlock).

Gamuda should not have problems financing the deal, given its low net gearing of about 0.24 times and gross cash of RM1.23 billion as of last quarter. That said, we keep toll concession earnings unchanged for now pending completion of the deal, expected in Jan 18, 2014.

Maintain “neutral” with unchanged target price of RM4.90 on parity with our revised sum-of-the-parts valuation. In view of the anticipated infrastructure spending, job flows for Gamuda remain good but we opine the risk-reward is not compelling for now. — Public IB Research, Dec 24

[You must be registered and logged in to see this image.]

This article first appeared in The Edge Financial Daily, on December 27, 2013.