Affin Daily Insight (LV) - 9 April 2014 - UTILITIES

Top Calls

Sector Update � Utilities (OVERWEIGHT, maintain) - Closure to the Selangor water affair The Federal Government has agreed to invoke Section 114 of the Water Services Industry Act 2006 (WSIA). We view this as another attempt to hasten the privatisation of Selangor�s water assets. Pricing remains the primary �stumbling block�. In this note, we highlight a potentially successful measure to unlock the �deadlock� by: (1) applying a consistent method of 1x NBV to value the three WTPs; and (2) applying an expropriation method to take over SYABAS given its negative NBV of RM1.9bn. In our scenario, the NBV of the 3 WPTs is c. RM4.4bn and given the Federal Government�s extension of RM2bn to the State (to facilitate the takeover), we believe the cash offer for equity can be raised to RM3.9bn. This represents a palatable 12% haircut. Blue sky fair value for Puncak Niaga is RM4.40/share. Maintain ADD with a TP of RM3.55/share. Gamuda, based on a 12% haircut, will suffer a smaller disposal loss of RM124m versus RM920m. Maintain BUY on Gamuda with a TP of RM5.60.

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