Gamuda to gain from Splash deal

> Special dividend unlikely as it is expected to use proceeds from sale of water services unit to reduce debts, says analyst

PETALING JAYA: Gamuda Bhd, which has accepted the RM2.55 billion takeover offer for its 40%-owned Syarikat Pengeluar Air Selangor Holdings Bhd (Splash), is likely to use the proceeds from the disposal to reduce its debts.

“We do not expect any special dividend arising from the proceeds of the disposal, as we believe that Gamuda may use it to pare down debts, which would bring down its net gearing from 0.55 times to 0.42 times,” Kenanga Research said in its report.

It said that Gamuda’s outstanding order book “comfortably” stands at RM6.4 billion with three-year visibility while its property division has raked in RM1.9 billion worth of sales for the first half of 2018, bringing its unbilled sales to RM2.4 billion with threeyear visibility.

“We maintain our ‘outperform’ call on Gamuda based on a lower sum-of-parts driven target price of RM4.30 from RM4.35 as we factor in the lower-thanexpected offer price into our valuation. We believe that after the resolution of the water saga in Selangor, Gamuda would be able to move on and focus on future projects like the Penang Transport Master Plan and MRT3,” it added.

It reduced its FY19E net profit by 38% and core net profit by 5%, after factoring the oneoff loss of about RM300 million and the loss of recurring income arising from the sale of Splash. On Thursday, Gamuda announced that its associate company Splash has decided to accept the takeover offer from Pengurusan Air Selangor Sdn Bhd (Air Selangor) for RM2.55 billion. The proposed acquisition includes 100% of Splash’s ordinary shares and 100% of Splash’s redeemable unsecured loan stocks, with RM1.9 billion to be paid as upfront payment while the remaining RM650 million will be settled with nine-year instalment as part of their sale and purchase agreement (SPA) terms. Air Selangor and Splash expect to finalise the terms and conditions of the SPA by Sept 14. “As highlighted in our previous report dated Aug 6, the offer price of RM2.55 billion from Air Selangor represents a 26% discount to its net book value of RM3.5 billion as of December 2017, which we believe is a sweet deal for the Selangor state government,” said Kenanga Research.

That said, the current offer is still higher than the net offer made back in 2014 of RM250.6 million. Although the offer price is lower than expected, Kenanga Research said it bodes well for Gamuda as it marks the end of the water saga.

“We also believe that they could potentially benefit from the resolution as we expect more water-related projects to be dished out in the future (one to two years) as both federal and state governments could potentially allocate more budget in improving the infrastructure in the water sector, that is, more water treatment plant, pipe replacement and others,” it said.