The Selangor State
Government (SSG), through Kumpulan Darul Ehsan Berhad (KDEB), was reported
yesterday to have made a new offer to buy Selangor’s water assets for a price
of RM9.65b. The details are not entirely available at this juncture as Puncak
did not reveal the content of the offer in its yesterday’s announcement. In a separate announcement,
Kumpulan Perangsang Selangor Berhad (KPS) announced that it had received an
offer from SSG for the acquisition of its shares in SPLASH and Titisan Modal Sdn
Bhd (TMSB) for RM1.8b and RM992m respectively. With the two offers announced by
KPS, the remaining RM6.8b would likely to be the price tag for Puncak Niaga Sdn
Bhd and SYABAS. These would imply higher valuations for Puncak and SYABAS, or
by as much as 29% and 12% higher than the previous third and fourth offers it
received previously from SSG and Gamuda respectively. We are surprised by the
news as we had expected the new offer to come in much later only i.e. after the
general elections. Nonetheless, we view the offers as a positive development
for the Selangor water players. Until more details are unveiled by Puncak in
the near term, we believe that this development will attract more attention
towards Puncak and Gamuda. We are keeping our OUTPERFORM recommendation on both
the companies with unchanged Target Prices of RM2.85 and RM4.29
respectively.
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
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