Deutsche Bank recommends 'buy' on Gamuda

by **Cals** Wed 21 May 2014, 01:42

Business & Markets 2014

Written by Bernama

Tuesday, 20 May 2014 15:21

KUALA LUMPUR (May 20): Deutsche Bank has recommended a 'buy' call on Gamuda Bhd as the company is slated to benefit from the water takeover offer by the Selangor state government, if it agrees to it.

Three water concessionaires in Selangor have so far accepted the takeover, leaving Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), which is 40 per cent owned by Gamuda, yet to agree.

"Should Selangor be agreeable to the Federal government's RM2 billion top up offer, Gamuda's 40 per cent stake in Splash will be worth RM886 million versus its current offer of RM100 million," Deutsche Bank said in a note.

On May 16, the Energy, Green Technology and Water Ministry announced that Puncak Niaga Holdings Bhd (PNHB) had agreed for both its concessionaires, Puncak Niaga Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), to be taken over by the state government.

Under the agreement, PNHB accepted Selangor's offer of RM2.47 billion and RM3.11 billion respectively, for PNSB and Syabas' equity, assets and liabilities.

To recap, Konsortium ABASS Sdn Bhd's (Abass) shareholders had earlier approved a RM900 million offer for the company's equity, assets and liabilities.

The Federal government has decided to postpone the enforcement of Section 114 of the Water Services Industry Act (WSIA) as there is no need to enforce it at this juncture, and this decision was also supported by Selangor.

Meanwhile, AmResearch Sdn Bhd has maintained its 'neutral' recommendation for Gamuda with RM5.25 fair value, reflected to a 10 per cent discount to Splash's net book value of RM2.5 billion as at end-December 2013.

"We opine that a fair valuation for Splash would remain crucial to push the restructuring exercise to its final resolution," the research firm said.

It also stated that its 'hold' recommendation on Puncak Niaga with a RM3.40 target price, remained unchanged as the valuation was based on the current offer.