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PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
21 April 2010

Gamuda Share Price

Fair Value
Splash Sweetens Takeover Offer For Klang Valley Recom : Underperform
Water Assets By Forgoing Ownership

Table 1 : Investment Statistics (GAMUDA; Code: 5398) Bloomberg: GAM MK

Net Net
FYE Turnover Profit# EPS# Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Jul (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 2,727.3 193.7 9.7 (40.7) 30.6 - 8.9 1.9 6.2 0.1 2.7
2010f 2,958.5 277.0 13.6 41.4 21.6 15.0 (9.3) 1.8 8.1 0.2 4.1
2011f 3,370.5 326.6 16.1 17.9 18.3 20.0 (10.5) 1.6 8.7 0.4 4.1
2012f 3,194.9 331.3 16.3 1.5 18.1 23.0 nm 1.5 8.1 0.5 4.1
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC #Ex-EI * Consensus Based On IBES Estimates

♦ Foregoing ownership of assets. Gamuda’s 40%-owned water Issued Capital (m shares) 2,017.5
Market Cap(RMm)
concessionaire Splash has sweetened its RM10.75bn takeover offer for 5,951.6
Daily Trading Vol (m shs) 7.3
water assets in the Klang Valley by foregoing the ownership of the assets
52wk Price Range (RM) 1.85-3.38
to bring the offer in line with “the spirit of the Water Services Industry Act
Major Shareholders: (%)
2006 (WSIA)”. Under the revised offer, the Government, via Pengurusan
EPF 10.1
Aset Air Bhd (PAAB), will carry the water assets in its books and lease the
Raja Dato’ Seri Eleena 7.4
assets at a lease rental rate of 6% p.a. with a 2.5% annual escalation to Platinum Investment 6.2
O&M operator Splash. Other key terms of Splash’s original offer will
remain including that: (1) Splash will forego the outstanding 37% tariff FYE Jul FY10 FY11 FY12
hike, replacing it with a 2-3% annual increase or 9% for every three years; EPS Revision (%) - - -
(2) It will be solely in charge of the O&M of water production and Var to Cons (%) -9 -20 -29
distribution; (3) it will require a 30-year concession commencing 2010; (4)
PE Band Chart
It will inherit the existing non-revenue water (NRW) reduction targets of
Syabas, i.e. 29%, 25%, 23%, 21%, 19%, 17% and 15% in 2010-2016. PER = 30x
PER = 25x
♦ Still a long shot. We still do not believe Gamuda will have its way. We PER = 20x
PER = 15x
believe there are two key elements to “the spirit of WSIA”, i.e. ownership
and control. While the revised offer does resolve the ownership issue, it
does not settle the control issue. It is not hard to imagine the kind of
political backlash both the Federal and state governments will get for
allowing the control of the water assets to move from a few “big
corporations” to a “big corporation”, or in other words, to remain with a
Relative Performance To FBM KLCI
“big corporation”. We are more inclined to continue to see Gamuda’s
move as a tactic to pressurise the governments into speeding up their
actions. Also, even if both the Federal Government and Selangor state
government give their blessing, the offer may still not be acceptable to all
♦ Risk appetite for construction stocks to improve. We are now more FBM KLCI

upbeat on the construction sector, prompted largely by investors’

improving risk appetite for construction stocks following: (1) The massive
underperformance of the sector vis-à-vis the market in 4Q2009 and
1Q2010; and (2) A better sector news flow and new expectations leading
up to the announcement of the 10th Malaysia Plan (10MP) in June 2010.
These may moderate negative elements such as: (1) The slow pace of the
roll-out of public projects, shrinking margins and declining dominance of
established players in large-scale projects locally; and (2) The not-so-rosy
outlook and increased operating risks in key overseas markets.
♦ Maintain Underperform. However, upside in Gamuda’s share price is Joshua CY Ng
capped by rich valuations. Indicative fair value is RM2.05 based on 14x (603) 92802151
CY10 EPS of 14.7sen, in line with our benchmark 1-year forward target
PER for the construction sector of 10-14x.

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Table 2: Outstanding Construction Orderbook
Project Balance Of Works (RMbn)
Ipoh – Padang Besar double-tracking project 3.8
Nam Thuen 1 hydroelectric project 1.8
Yenso Park Infrastructure works 0.9
Outstanding works in the Gulf states 0.5
Total 7.0
Source: Company

Table 3: Earnings Forecasts Table 4: Forecast Assumptions

FYE Jul (RMm) FY09a FY10F FY11F FY12F FYE Jul FY10F FY11F FY12F

Turnover 2,727.3 2,958.5 3,370.5 3,194.9 Construction EBIT margin (%) 4.1 7.2 8.8
Turnover growth (%) 13.5 8.5 13.9 -5.2 New orderbook secured (RMbn) 1.0 1.0 2.0

EBITDA 197.9 257.3 363.6 397.1

EBITDA margin (%) 7.3 8.7 10.8 12.4

Depreciation -14.1 -14.8 -15.6 -16.4

Net Interest -44.8 -38.2 -76.6 -101.7
Associates 143.2 176.2 176.2 176.2
EI 0.0 0.0 0.0 0.0

Pretax Profit 282.2 380.4 447.6 455.2

Tax -78.0 -95.1 -111.9 -113.8
PAT 204.2 285.3 335.7 341.4
Minorities -10.5 -8.3 -9.2 -10.1
Net Profit 193.7 277.0 326.6 331.3
Source: Company data, RHBRI estimates


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