Selangor’s Menteri Besar has written to the Energy, Green Technology and WaterMinister to proposing to take over the state water service concessionaire, Syabas SB. We are unmoved by this move as we do not see a takeover as possible without prior consent from Puncak Niaga, its shareholders and creditors, plus the Federal Government, which holds a golden share in the company. We also rule out the possibility of any offer from the state government being acceptable to Puncak since the polls are just around the corner. Hence, we keep our Trading BUY call on the stock given its undemanding valuation and rising contribution from its O&G division. Our FV stands at RM2.08.
New tussle. The Malaysian Insider quoted a statement from Selangor Menteri Besar (MB) Tan Sri Abdul Khalid Ibrahim saying that the Selangor government wants to take over the state water service provider Syabas SB in two weeks. He also claimed that he has received the green light from Deputy Prime Minister Tan Sri Muhyiddin Yassin, who is also the chairman of the Cabinet Committee on Water. The MB said the state government has written to the Energy, Green Technology and Water Ministry to notify the latter of its proposal to take over the concessionaire within 14 days.
Not the first time. This is not the Selangor government’s first attempt to take over the concessionaire, having made its first offer back in 2009. We suspect the state government’s latest move may have been sparked by the recent spate of water supply disruption due to faulty pumps at the Wangsa Maju pump house. As the details are sketchy at this juncture, we are unsure if the takeover referred to in the statement represents a new offer to take over Syabas SB, or if it is merely action taken by the state government against Syabas for having failed to fulfill certain terms and conditions stipulated in its Concession Agreement.
New tussle. The Malaysian Insider quoted a statement from Selangor Menteri Besar (MB) Tan Sri Abdul Khalid Ibrahim saying that the Selangor government wants to take over the state water service provider Syabas SB in two weeks. He also claimed that he has received the green light from Deputy Prime Minister Tan Sri Muhyiddin Yassin, who is also the chairman of the Cabinet Committee on Water. The MB said the state government has written to the Energy, Green Technology and Water Ministry to notify the latter of its proposal to take over the concessionaire within 14 days.
Not the first time. This is not the Selangor government’s first attempt to take over the concessionaire, having made its first offer back in 2009. We suspect the state government’s latest move may have been sparked by the recent spate of water supply disruption due to faulty pumps at the Wangsa Maju pump house. As the details are sketchy at this juncture, we are unsure if the takeover referred to in the statement represents a new offer to take over Syabas SB, or if it is merely action taken by the state government against Syabas for having failed to fulfill certain terms and conditions stipulated in its Concession Agreement.
No immediate solution in sight. We suspect that the verbal tussle between the state government and Syabas SB may continue at least until the conclusion of the ever closer upcoming General Election. Although the state government owns a 30% stake in the water supply company via Kumpulan Darul Ehsan and Kumpulan Perangsang Selangor, it remains a minority shareholder with a limited two seats on the company board. Therefore, any takeover would need the consent from its major shareholder, Puncak Niaga (70%), which in turn will require the blessings of its shareholders and creditors. As the Federal Government, through the Minister of Finance Inc., also holds one golden share in Syabas SB, its written consent needs to be obtained prior to any asset disposal or merger. Meanwhile, we also rule out possibility of the state government making any acceptable offer for the remaining stake in Syabas SB considering that the election polls could be called anytime in the next few months. Besides these, the state government would also need to go through the normal legal process before it can revoke any concession.
Reiterate Trading BUY. As we think the tussle with the state government to prolong, we instead focus on the company undemanding valuation. We reckon the major improvements to the company’s bottomline the late were mainly attributed to compensation for the non-implementation of higher water tariffs and did not involve any physical cash inflow until the court delivers its judgement. Nonetheless, the improvement in P&L is indeed a 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
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