KUALA LUMPUR: Affin Hwang Capital research is neutral on the Ministry if Finance's (MoF) offer to Gamuda Bhd to acquire its toll highway stakes for RM2.36bil.

In a note, it said the offer price was a negative surprise as it came 16% below its DCF valuation of RM2.8bil but it believes the MoF's market-driven approach reduces government policy risks for concession companies.

It would also augur well for Gamuda to participate in future Public-Private Partnership projects, it said.

"The offer price is below our DCF valuation of RM2.8bn based on a WACC discount rate of 5.7-7.3% and at the low-end of market consensus range of RM2.3-3.5bn. We were surprised by the low valuation of KESAS and SMART. 

"However, we understand that the offer price is within Gamuda’s internal valuation and hence the offer will likely be accepted," said Affin Hwang.

Should the offer be accepted by Gamuda and the deal completed by the Dec 31 deadline, Affin Hwang will cut its core EPS by 15-28% in F20-21E to reflect the loss in toll highway earnings contribution post-disposal, partly offset by interest income on the RM2.36bil cash proceeds.

"We gather that Gamuda could recognise an exceptional gain of over RM1bn from the disposal, which is not reflected in our FY20E EPS," it added.

The research house downgraded Gamuda to hold and raised its target price to RM4.08 from RM3.70 previously due to strong outperformance in its share price.