Water - PAAB backs Splash (CIMB)

Gamuda's Splash has made a revised takeover offer for all the water concessionaires in Selangor to align with the WSIA legislation. The acquisition price of RM10.8bn is unchanged but now comprises PAAB's RM8.1bn offer topped up by Splash's offer of RM2.6bn. While this development is a surprise, PAAB's involvement at this juncture is understandable as Splash's operating structure post consolidation should comply with the asset-light model under WSIA. This is a positive turn of events as the new proposal has the backing of the federal government and an even better chance of going through. We maintain our TRADING BUY on the water sector. Puncak Niaga remains our top pick with an unchanged target price of RM4.50 (10% discount to DCF), backed by its effective takeover price of RM4.54/share.