Puncak Niaga - Scheduled tariff kicker HOLD

- We maintain our HOLD recommendation on Puncak Niaga Holdings. Puncak’s 1QFY12 net profit came in at RM68mil against a net loss of RM8mil a year ago. As expected, no dividend was declared for the quarter under review.

- Its results were ahead of both the street and our expectations. The main kicker came from the recognition of a scheduled tariff hike as per its concession agreement, which was supposed to have been effective from 1 January 2012.

- While we are not surprised by the tariff hike, the quantum of it probably threw our previous forecast out of whack.  As such, we have raised our net profit assumptions  to RM251mil-RM296mil for FY12F-14F – or between 2x-4x higher than our previous forecasts.

- In addition, we have also included between RM500milRM650mil worth of new contracts for its oil & gas division. This would mainly come from offshore pipe installation (OIC) works under Global Offshore – which Puncak wholly acquired in 2H12.

- We note, however, that a fairly substantial portion of our new earnings assumptions are premised on the water tariff compensation claims, which are non-cash in nature.

- To be sure, Puncak’s water distribution unit SYABAS has initiated legal action against the Selangor government for water tariff compensation as agreed in their concession agreement. Total claims submitted from 1 January 2009 until 31 March 2012 stood at close to RM1.7bil.

- We acknowledge Puncak’s increasing moves into the oil & gas scene. Through Global Offshore, we gather that the group is one of two major players capable of undertaking OIC-related jobs in Malaysia. 

- To this end, Puncak is looking to add another RM200milRM300mil worth of oil & gas jobs to the RM500mil it had already secured earlier this year – the bulk of it  OICrelated.  The group is also actively bidding for various marginal oilfield projects under PETRONAS through collaboration with foreign partners.  

- However, we would like to track Puncak’s oil & gas performance over a few more quarters before we turn more constructive on this segment. 

- Our HOLD call on Puncak remains as we do not envisage a resolution to the long standing Selangor water impasse to come soon. Our fair value – mainly premised on a break-up value – is only slightly raised to incorporate contributions from its oil & gas units.   

Source: AmeSecurities