Bulk water supply rate cut seen having little impact on Gamuda

PETALING JAYA: PublicInvest Research views the cut in the bulk water supply rate in Pengurusan Air Selangor Sdn Bhd’s offer as a positive development as it confirms continuation for Gamuda Bhd in providing operation and maintenance services to the Sungai Selangor Water Treatment Plant Phase 3 (SSP3) and the recovery of RM400 million receivables owed by Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash).
“Earnings are kept unchanged pending more details but the impact is believed to be minimal,” it said in a research note today, maintaining its “neutral” call on Gamuda with a target price of RM3.80.
AmInvestment Bank believes the offer is most likely to be accepted by Gamuda’s 80%-owned subsidiary, Gamuda Water.
Based on its estimates, the effective “haircut” from the new bulk water supply rates to Gamuda Water’s pre-tax profit (PBT) is only RM7.4 million, shaving the annual PBT of RM60 million by only 12%. Hence, Gamuda’s share of the haircut is only RM5.9 million at PBT level based on its 80% stake.
Accordingly, AmInvestment Bank has trimmed Gamuda’s FY19 and FY20 earnings forecasts by 1% each. It noted that by accepting the offer, Gamuda Water will effectively lock in decent recurring incomes for the next 11 years.
AmInvestment Bank has kept its “hold” call on Gamuda but cut its fair value to RM3.34 from RM3.36.
On Tuesday, Gamuda received an offer from Air Selangor setting out the new operations and maintenance agreement of SSP3 with Splash and the settlement of Gamuda Water’s outstanding receivables from Splash.