PETALING JAYA: Gamuda Bhd’s intended purchase of the 70% stake it does not already own in highway concession company Kesas Holdings Bhd will help the former mitigate its potential earnings loss from its eventual disposal of Syarikat Pengeluar Air Selangor Holding (Splash).
An industry observer said negotiations to sell Splash was expected to start this month and that the purchase of the balance stake in Kesas would give recurring income to Gamuda.
Kesas is the toll concessionaire for the 35km Shah Alam Expressway under an agreement that is valid till Aug 18, 2023.
In a report yesterday, Hong Leong Investment Bank (HLIB) Research said: “The deal will immediately be earnings accretive for Gamuda and also timely to mitigate the potential loss of earnings from Splash following the imminent disposal to the Selangor state government.
“It is also a better investment than land banking exercise, given the cautious mood in the property sector post-2014 Budget.”
AmResearch, meanwhile, said it expected Gamuda to make good progress on the potential disposal of its water assets.
“We believe Gamuda’s latest move to buy out Kesas is part of a larger plan to consolidate and then unlock the value of its concession units after earlier moves to divest some of these assets did not pan out,” it said.
Gamuda has a 40% stake in water treatment operator Splash.
The construction outfit, which currently owns a 30% stake in Kesas, announced on Monday that it was making a RM875mil bid to buy out Kesas from three other shareholders, namely, Selangor State Development Corp (30%), Amcorp Properties Bhd and Permodalan Nasional Bhd (20% each).
According to HLIB, Gamuda has a cash position (including marketable securities) of RM1.75bil and total borrowings of RM2.46bil as at financial year ended July 31, 2013.
“With this acquisition, its net debt will rise to RM1.59bil with net gearing rising to 33% from 15%,” it said.
HLIB said it would raise Gamuda’s financial year 2014 and 2015 earnings estimates by 12% to 15% to RM727mil to RM826mil, respectively, with the additional earnings contribution from the 70% stake in Kesas.
BIMB Securities, meanwhile, said Kesas’ profit and loss would consolidate to Gamuda’s accounts upon completion of the acquisition.
“Based on our calculation, net profit for Gamuda will surge by about 19% for financial year 2014 and 2015. In addition, net gearing for Gamuda will increase by 0.18 times to 0.33 times,” it said.
CIMB Research said that at RM875mil for the 70% stake, the buyout valued Kesas at RM1.3bil, adding that it would raise Gamuda’s financial year 2014 to 2015 earnings per share (EPS) by 10% to 12%.
“This move is also positive as it can mitigate risks of an EPS decline in financial year 2014 from the monetisation of Splash,” it said.
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