Gamuda: SPLASH stake valued at M$160 mil only - ALERT

Link: https://mm.jpmorgan.com/servlet/UserDocsHelperServlet?action=openpdf&docId=GPS-267939-0

Abstract:
· Gamuda has announced that SPLASH (of which Gamuda owns 40%) has received a formal offer from the Selangor State Government to take over of the water assets and operations, for a price of M$2.0 bil, without taking into consideration the value of the net debt at SPLASH (estimated at c.M$1.6 bil).

· Essentially, this offer values SPLASH at c.M$400 mil, implying that Gamuda's stake is only worth about M$160 mil, significantly lower than our estimate of M$1.2 bil. At M$160 mil, the Selangor State Government essentially values SPLASH at c.1.6x the dividends up-streamed from SLASH to Gamuda annually. A value of M$160 mil also translates only to 8 sen per share.

· While we have yet to further clarify with management on the details of the offer letter, it seems to be low, in our opinion, especially when weighed against our DCF valuation of c.M$1.2bil (roughly on par with consensus). Nevertheless, the option now lies with Gamuda to either accept or reject the offer, deadline of which is set on Feb 20th 2009.

· Pending more clarification from management, we view the offer price as negative to the company.