AmResearch maintains 'neutral' call on the Selangor water sector

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KUALA LUMPUR (Sept 9): AmResearch Sdn Bhd maintained its “neutral” call on the water sector, following the closure of the Selangor water restructuring deal with the signing of four agreements between Pengurusan Aset Air Bhd (PAAB) and Pengurusan Air Selangor Sdn Bhd (PASSB) yesterday.

In a sector note today, AmResearch analyst Max Koh said there was no surprise with the development as both the federal and state governments had reiterated their commitments to finalise the deal within 60 days from the signing of the supplementary agreement on July 10.

Yesterday, both PAAB and PASSB signed the facility agreement, lease agreement, rights of use agreement, and settlement agreement, bringing close to the seven-year debate on the water matter in Selangor.

“The signing of the four agreements effectively completes the master agreement and the release of RM2 billion from PAAB to PASSB for the acquisitions of Syarikat Bekalan Air Selangor (Syabas), Puncak Niaga Sdn Bhd (PNSB), Konsortium Abass Sdn Bhd, and Syarikat Pengeluar Air Sungai Selangor (SPLASH),” Koh said.

The end of the deal also signals parent company of PNSB, Puncak Niaga Holdings Bhd’s disposal of water assets to PASSB for RM1.55 billion, he said, adding that the group’s future hinged upon the utilisation of RM1 billion of the proceeds for either oil and gas, or plantation ventures.

AmResearch has a “hold” call and fair value of RM2.80 per share for Puncak Niaga Holdings (fundamental: 1.7; valuation: 2.1).

Meanwhile, it placed a “buy” call on Gamuda Bhd, with a fair value of RM5.80 for its 40% stake in SPLASH, and an estimated water asset accounting for RM994 million or 6% of the group’s net asset value (NAV).

“We also expect the Langat 2 (water treatment plant) project to remain [on] track to completion to 2019, given the commitments by both federal and state governments. While the latest development has been expected, we are nevertheless still positive on the news.

“We now await a conclusion with SPLASH for the ultimate closure to the water restructuring exercise in the state. We maintain our “neutral” call on the sector,” he said.

At 10.31am, Puncak Niaga Holdings dipped three sen or 1.11% to RM2.68, with 936,000 shares transacted, for a market capitalisation of RM1.13 billion.

At 10.46am, Gamuda (fundamental: 1.8; valuation: 2) remained flat at RM4.40 with 980,200 shares done, with a market capitalisation of RM10.6 billion.

(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.)