Thanks to timely profit recognition at its construction
division, Puncak’s core net profit of RM3.7m
for FY11 beat our and street projections for a loss. Meanwhile, we
reckon the scheduled 25% water tariff hike from 2012 may somewhat help improve earnings, regardless of whether
official approval is granted. We are also upbeat on higher revenue from its newly acquired Oil & Gas
(O&G) unit and earnings from outstanding pipe laying projects. As the share
price offers a decent upside to our FV of RM1.82, we are
prompted to upgrade Puncak back to
a Trading BUY.
Marginally ahead of
expectation. Excluding the
non-operating income amounting to RM5.6m, Puncak reported a core net profit of
RM3.7m for FY11, which was ahead of our and consensus’ projection of a loss.
The revenue was 21.7% higher than our numbers, thanks mainly to higher
construction revenue from its water pipe project and maiden contribution
from its
newly acquired O&G subsidiary. However, the group
is allocating more capex and various annual charges directly to its
income statement (P&L) to comply with accounting standard IC 12, which
continues to undermine Syarikat Bekalan Air Selangor SB (Syabas)’s bottomline. That said, the
timely profit recognition in its construction
division will help to cushion the negative impact.
25% tariff hike and
O&G contribution? As provided under the concession agreement, 70%-owned
Syabas is scheduled to receive a 25% water tariff hike from 1 Jan 2012. We do
not expect any hike to be implemented as the previously scheduled 30% hike for
2009 is still under legal dispute with the Selangor State Government. However,
we believe the group will again account for the estimated compensation for the
new water tariffs, which will artificially boost its bottomline. Meanwhile, we
also understand that its newly acquired Global Offshore (M) SB (GOM) has
secured a lucrative O&G pipe maintenance project worth some RM420m, which
will keep the unit busy this year. This aside, Puncak is also bidding for
various water projects, with margins for its water and O&G projects estimated
to be in the mid-teens.
Trading BUY. We
expect Puncak’s FY12 profit to hit RM172.4m, incorporating the tariff hike
compensation mentioned earlier, as well as contributions from its O&G and
water pipe-laying projects. Since our last downgrade on the stock, its share
price accordingly fallen back. Against our original fair value of RM1.82, the
stock now provides a decent potential upside of 31%. In light of these factors,
we upgrade Puncak back to a Trading BUY. Our fair value is derived from 0.7x
FY11 B/V, which was the benchmark used before adjustments for IC Interpretation
12.
Source: OSK188
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