WITH a new master agreement, which has an early September deadline, possibly ending Selangor’s water impasse, Kumpulan Perangsang Selangor Bhd (KPS) is poised to become a cash-rich company without a core business.

On July 10, Selangor and Putrajaya signed a supplemental agreement, which extended by 60 days the master agreement that was inked last September to finalise the restructuring of the state’s water supply industry.

If all goes well, and once the sale of KPS’ water assets is approved by shareholders, the group stands to gain close to RM3 billion cash from the transaction.

To recap, in March last year, KPS accepted the offer of parent company Kumpulan Darul Ehsan Bhd (KDEB) to buy its 90.83% stake in Titisan Modal (M) Sdn Bhd — which controls Konsortium ABASS Sdn Bhd — and 30% equity interest in Syarikat Pengeluar Air Selangor Holdings Bhd (SPLASH) for RM990.2 million and RM1.83 billion respectively.

KDEB, which is Selangor’s investment arm, owns 57.88% of KPS.

A fund manager, who declines to be named, feels that the minority shareholders of KPS (fundamental: 0.80; valuation: 2.40) should remain invested in the stock and wait for a possible special dividend from the sale of its water assets.

“KPS is getting about RM337 million or 67 sen per share for ABASS, based on the latest equity offer. If the new offer for SPLASH is at a one-time book [value] of around RM2.8 billion, its 30% stake is worth RM800 million, which is bigger than KPS’ market capitalisation,” he says.

The fund manager’s figure for ABASS is net of its loans while his estimate for SPLASH is based on Gamuda Bhd’s book value.

It is noteworthy that Gamuda (fundamental: 1.80; valuation: 1.40) had rejected the takeover offer from the Selangor government for its 40% stake in SPLASH for RM250 million as the company believes its equity interest should be sold at its book value of RM2.8 billion.

“If the sale of SPLASH comes through [based on Gamuda’s book value], we may be looking at a little over RM1 dividend per share,” the fund manager estimates.

Recall that in September 2013, KPS paid out a special dividend of 26.67 sen per share, amounting to RM99 million. The dividend was funded by the proceeds from the divestment of its 56.57% stake in Kumpulan Hartanah Selangor Bhd for RM212.8 million cash to KDEB.

As at March 31, KPS had total assets of RM2.81 billion. Its cash and cash equivalents stood at RM65.74 million, with borrowings of RM997.34 million.

For the first quarter ended March 31, 2015 (1QFY2015), KPS saw a net profit of RM20.26 million compared with RM23.27 million in the previous corresponding period. 

Revenue was also lower at RM69.01 million compared with RM73.09 million a year ago due to lower contributions from its infrastructure and utilities, and hospitality sectors.

In FY2014, net profit fell 54.4% year on year to RM130.27 million while revenue slipped to RM314.03 million from RM316 million.

The infrastructure and utilities segment, which houses its water business, contributed the most to the group’s revenue and profit at RM220.77 million and RM90.6 million respectively.

“With the impending divestment of ABASS and SPLASH, the group is actively pursuing new investment opportunities to ensure that its performance continues to be profitable,” KPS says in its 2014 annual report.

With earnings dragged down as many of its profitable businesses have been taken over by KDEB, some quarters believe it’s only a matter of time before KPS is absorbed into the state investment arm through a privatisation exercise.

It is interesting to note that KPS had last year divested its 49% stake in KDE Recreation Bhd, the owner and operator of Kelab Darul Ehsan, to Berjaya Vacation Club Bhd for RM12.82 million.

KPS had also closed Quality Hotel Shah Alam in Plaza Perangsang, to make way for a redevelopment project, and the Brisdale International Hotel to facilitate refurbishment works.

Furthermore, the group shut down Perangsang Templer Golf Club to facilitate the joint redevelopment of the golf course into an environmentally friendly mixed-use area through a partnership with S P Setia Bhd (fundamental: 1.60; valuation: 2).

KPS also has interests in the oil and gas and telecommunication sectors. However, both businesses had yet to generate any revenue in FY2014. It is unclear if the group intends to develop them with the proceeds from the sale of its water assets.

The counter closed at RM1.37 last Thursday for a market capitalisation of RM688.63 million.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.