Analysts positive on Gamuda’s 70% stake in Kesas

KUALA LUMPUR: The eventual acquisition of a 70% stake in Kesas Holdings Bhd by Gamuda Bhd is expected to boost the latter’s earnings prospect going forward, according to analysts.

Public Investment Bank analyst Tan Siang Hing estimated Gamuda’s earnings might increase by 5% to 6% in financial year ending July 31, 2014 (FY14) to FY16.

“Kesas is contributing about RM30mil to RM40mil net income to the group in our estimates and the deal could potentially increase the recurring earnings in view of the proposed deal to dispose its water concession,” he said on Tuesday.

On Monday, Gamuda has received an acceptance from Permodalan Nasional Bhd (PNB) to buy out 20% stake in Kesas.

Along with Amcorp Properties Bhd’s 20% stake in Kesas and PNB stakes, Gamuda holding in Kesas has been raised to 70% from 30% previously.

However, in a filing with Bursa Malaysia, the group did not mention whether Perbadanan Kemajuan Negeri Selangor (PKNS) has accepted its revised offer.

On Dec 23, Gamuda has revised upward its offers following thumbs down to its original offer by PKNS and PNB.

From the revision, Gamuda increased its offer price for PKNS’ 30% stake to RM420mil from RM375mil, while for PNB’s 20% to RM280mil from RM250mil.

In line with the new offer, Amcorp, who has accepted the previous offer, was also raised to RM280mil from RM250mil.

The new offer has valued Kesas RM1.4bil compared to RM1.25bil from the previous offer.

Tan said that Kesas’s sustainable toll receipt was estimated at RM120mil per annum or about 11.7 times price-earnings ratio of the latest offer.

“This appears to be fair in our view, considering it is mature concession with contractual toll rate hikes,” he noted.

“With the deal closed, Gamuda’s purchase to increase its stake to 70% in Kesas is expected to increase its net gearing from current 20% to 31%, which is manageable in our view,” he added.

Kesas is the toll concessionaire for the 35km Shah Alam Expressway under a concession agreement that is valid until Aug 18, 2023.

Affin Investment Bank is maintaining its FY14 to FY16 forecasts pending the signing of sale and purchase agreements with Amcorp and PNB.

“Key risk to Kesas include competition from other routes such as toll-free roads and New Pantai Expressway, tariff increases and the Shah Alam expressway being its sole concession of Kesas,” it said.

Gamuda has a direct interest in Sprint and in Litrak that has the concession to the Damansara-Puchong Highway and Sprint highway. It also has interest in Smart tunnel.

Gamuda ended two sen higher at RM4.80 on volume of 2.7 million shares.
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