WHILE the promise of mega water projects has built up interest in water-related companies on the KLSE, not all industry players are expected to benefit equally from the future privatisation of water supply.
Analysts say companies that are higher on the value chain stand to benefit from the privatisation of water supply, and most of these are dam and water treatment plant builders.
They are at the top of the value chain, where the bulk of investment will come from, said an analyst with Mayban Securities. Other players will benefit at a later stage.
Among the majors are Ranhill Bhd, Road Builder Holdings Bhd and Gamuda Bhd, all rated “buys” by Mayban Securities. Other, but smaller dam builders and contractors include Loh & Loh Construction Bhd and ACP Industries Bhd.
Another player is Salcon Bhd, which will be listed on the main board this week. The company is also involved in the management and operation of several water treatment plants.
Among projects Salcon is competing for is the Pahang-Selangor water transfer project. The Japan Bank of International Cooperation is currently calling for tenders and the outcome is expected to be known soon.
With financing already secured, this project is expected to be the next prized cow for the water industry, analysts said.
After the top end, companies operating in the middle of the value chain are pipemakers such as YLI Holdings Bhd, and companies in pipe replacement, such as TSR Capital Bhd, Puncak Niaga Holdings Bhd and Ranhill, with UAC Bhd also seen as a beneficiary.
The pipe replacement project is expected to begin once the federal government takes over the management of water from the state governments.
At the bottom half of the value chain are water supply concessionaires, and managers and operators of water treatment systems. They include Puncak Niaga, Ranhill Utilities Bhd, PBA Holdings Bhd, Taliworks Bhd and Intan Utilities Bhd.
According to analysts, companies such as Ranhill are likely to benefit from the entire value chain of water projects. Its unit, Ranhill Utilities, is the privatised water supply entity for Johor.
Based on recent experiences, water concessionaires can indeed enjoy handsome profits. They currently sell water directly to state water authorities at a fixed cost, which carry a margin of as high as 40%, said an industry player.
Puncak Niaga may also benefit as states embark on further privatisation. The company is expected to supply water direct to consumers if it wins its bid to take over PUAS Bhd, currently a state-owned corporatised body.
An analyst from Kim Eng Research expects Puncak Niaga to emerge the winner for privatisation of water distribution in the Klang Valley, with a potential stake of 60%.
Analysts like PBA for its ability to make profits, and its recent venture to China is also a big plus point for investors.
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