Puncak Niaga - Turning to new ventures HOLD

Maintain HOLD on Puncak Niaga Holdings with an unchanged fair value of RM1.60/share – pegged to a  65% discount to its estimated break-up value. Puncak reported a 4QFY11 net profit of RM9mil, bringing FY11 net loss to a lower amount of RM9mil vs. a RM72mil loss a year earlier. 

Puncak’s results came in ahead of both ours, and the street expectations of full-year losses to the tune of RM20mil and RM31mil, respectively. The positive variance, in our view, largely stemmed from a sizeable reversal in its minority interest position, particularly in 4QFY11 (~RM31mil).  

FY11 results were impacted by the adoption of the IC Interpretation 12, through retrospective changes to its P&L statement. However, against last year’s RM72mil loss, this was a significant improvement due to contributions from its new oil& gas businesses.

We have cut the group’s FY12F-13F net profit forecasts by 35% and 19%, respectively, to input higher operating costs for its water division and notional interest cost on concession liabilities as a result of IC12. This truncates a scheduled tariff hike for SYABAS in 2012 that we continue to assume and billings from ongoing works for its oil & gas division.

Puncak created some buzz when in 4Q10, it bought out the remaining 40% interest in Global Offshore Malaysia and KGL Ltd for a combined US$59mil (~RM177mil). 

The new acquisitions are supposed to spearhead Puncak’s foray into the oil & gas sector. Apart from pipe-laying contracts, the group is eyeing a role in the development of marginal oil fields and brownfields. 

The group has in recent months also made overtures  to expand its scope into other ventures beyond its water business in Selangor. These include: (i) The privatisation of Indah Water Konsortium (IWK) under a 1MDB-led consortium; and (ii) Scouting for solid waste management contracts in Cambodia. 

But, our call on Puncak remains a HOLD. Prospects for Puncak’s non-water ventures remain fluid at this juncture against an evolving political backdrop. 

 Its share price has since retraced by 28% after scaling a high of RM1.89/share earlier this month, after market anticipation on a state-led takeover of water assets in Selangor eventually fizzled out. 

We would only turn more constructive on the stock when greater clarity surfaced on the restructuring of Selangor’s fragmented water industry. We do not envisage this  to happen before the 13th General Election.  

Source: AmeSeurities