Construction (Overweight): Pre-Raya goodies (Selangor water)

Construction (Overweight): Pre-Raya goodies (Selangor water)

What’s New

·         The Federal and Selangor governments signed a supplemental water agreement on 10 Jul 2015.

·         The supplemental agreement clarifies some asset ownership issues, which includes allowing the water restructuring exercise to proceed without Selangor giving up its land while still complying with the requirements of the Water Services Industry Act 2006.

·         The signatories have 60 days to complete the master agreement.

What’s Our View

·         Positive step towards concluding the Selangor water restructuring that started since 2008.

·         The Selangor state government will provide full support to the Langat 2 project and commit to focus efforts in improving water supply services including reducing non-revenue water (NRW).

·         Both governments should also resume negotiations on the acquisition of SPLASH (40% owned by Gamuda); a conclusion before end-2015 could be a target.

·         Beneficiaries:

              i.        Puncak Niaga (PNH MK, Non Rated), re-featuring as an attractive yield play as it intends to pay out MYR534.5m (MYR1/sh) as dividends from its MYR1.5b proceeds,

             ii.        Gamuda, as the valuation of SPLASH sale should be higher on a willing-buyer-willing-seller outcome,

            iii.        water infrastructure contractors (Salcon, Jaks Resources, GeorgeKent), NRW specialists (Salcon) and water pipe producers (Engtex, Yli) in the medium term.