GAMUDA (5398) : Gamuda - Building up the catalysts
Target RM5.99 (Stock Rating: ADD)
Newsflow confirmed our recent industry checks that the water takeover negotiations in Selangor are likely to re-commence following the change in state leadership. Finalising the deal with Gamuda's 40%-owned Splash will be the focus and a likely favourable outcome in the medium term could catalyse the stock. If successful, we believe Gamuda may reserve the cash proceeds for the chance that it could bag the transport infra PDP role in Penang, a new stock catalyst. The lower likelihood of special dividends from asset divestment will not be all that disappointing if there are new growth opportunities beyond MRT in the Klang Valley. Maintain Add. Gamuda remains our top big-cap pick. Our target price is still based on a 10% discount to RNAV.
What Happened
Press outlets have reported that group MD Dato' Lin Yun Ling has revealed that the water takeover talks with the state government and the new MB have restarted. Indications are that Gamuda is expecting to divest Splash for RM2.8bn or 1x BV. This expectation is supported by historical transactions with the same valuation principle. Another news report mentioned that Gamuda has submitted its bid for the RM27bn Penang transport master plan.
What We Think
We are encouraged by these developments, which support the positives from our recent industry checks on the water takeover front and the progress of the Penang transport master plan. Splash is the last targeted asset after the acceptance by Puncak Niaga. For the water takeover negotiations to succeed, we continue to believe the valuations for Splash have to exceed the 0.1x BV of the last offer. During a recent meeting, management sounded fairly confident that the takeover negotiations under the new MB would result in better terms. On construction prospects, there is now more conviction that the RM27bn Penang transport master plan is a potential new prospect beyond MRT and is likely to roll out faster than MRT 2's targeted start of works of mid-2016, if the project delivery partner (PDP) for the Penang job can be finalised before end-2015.
What You Should Do
Accumulate ahead of potential recovery in positive newsflow. The fall in crude oil price has impacted the share price (down 10% from its 52-week high) and the selldown is overdone, in our view. Medium-term catalysts could emerge in the form of positive developments in the divestment of Splash and clarity on the finalists for the Penang transport master plan.
Source: CIMB Daybreak - 08 December 2014
Target RM5.99 (Stock Rating: ADD)
Newsflow confirmed our recent industry checks that the water takeover negotiations in Selangor are likely to re-commence following the change in state leadership. Finalising the deal with Gamuda's 40%-owned Splash will be the focus and a likely favourable outcome in the medium term could catalyse the stock. If successful, we believe Gamuda may reserve the cash proceeds for the chance that it could bag the transport infra PDP role in Penang, a new stock catalyst. The lower likelihood of special dividends from asset divestment will not be all that disappointing if there are new growth opportunities beyond MRT in the Klang Valley. Maintain Add. Gamuda remains our top big-cap pick. Our target price is still based on a 10% discount to RNAV.
What Happened
Press outlets have reported that group MD Dato' Lin Yun Ling has revealed that the water takeover talks with the state government and the new MB have restarted. Indications are that Gamuda is expecting to divest Splash for RM2.8bn or 1x BV. This expectation is supported by historical transactions with the same valuation principle. Another news report mentioned that Gamuda has submitted its bid for the RM27bn Penang transport master plan.
We are encouraged by these developments, which support the positives from our recent industry checks on the water takeover front and the progress of the Penang transport master plan. Splash is the last targeted asset after the acceptance by Puncak Niaga. For the water takeover negotiations to succeed, we continue to believe the valuations for Splash have to exceed the 0.1x BV of the last offer. During a recent meeting, management sounded fairly confident that the takeover negotiations under the new MB would result in better terms. On construction prospects, there is now more conviction that the RM27bn Penang transport master plan is a potential new prospect beyond MRT and is likely to roll out faster than MRT 2's targeted start of works of mid-2016, if the project delivery partner (PDP) for the Penang job can be finalised before end-2015.
What You Should Do
Accumulate ahead of potential recovery in positive newsflow. The fall in crude oil price has impacted the share price (down 10% from its 52-week high) and the selldown is overdone, in our view. Medium-term catalysts could emerge in the form of positive developments in the divestment of Splash and clarity on the finalists for the Penang transport master plan.
Source: CIMB Daybreak - 08 December 2014
