Puncak Niaga Holdings (Puncak)’s 1HFY12 net profit of RM146.8m was well in line with our estimates but 11% ahead of market expectations. Although the improvement was partly due to the recognition of higher water tariff compensation without involving physical cash until the court hands down judgment, its Oil & Gas (O&G) and construction units made great strides in 2Q. We believe the results are enough to cheer investors, especially since the equity market is currently short on investment ideas. That said, we are keeping our profit estimates and maintain our Trading BUY on Puncak, with our FV lifted to RM2.08.
Result in line. Puncak’s net profit of RM146.8m for 1HFY12 was well within our but was 11% ahead of street estimates. This was due to the timely recognition of higher water tariff compensation arising from the scheduled 25% water tariff hike, which should have been gazetted on 1 Jan 2012. Meanwhile, the group’s Oil & Gas division reported a profit before interest and tax (PBIT) of RM34.6m, or a 380% improvement q-o-q, as the pace of jobs returned to normal when the monsoon season ended. Also, its construction division posted a higher PBIT of RM22.8m in 1H, boosted by a local rural water supply project.
O&G fared well. As the dispute between its water unit and the Selangor State Government rages on, the focus has turned to Puncak’s O&G business. Meanwhile, we understand that the newly acquired Global Offshore (M) SB (GOM) has secured a lucrative O&G pipe maintenance project worth more than RM500m YTD, which is impressive, considering it is newly acquired. We expect the income from GOM to be sustainable moving into 3Q before monsoon season arrives at the year-end. Meanwhile, the margins from the group’s O&G projects are estimated to be in the mid-teens. That said, as the earnings are largely in line with our estimates, we are making no change to our projection for now.
Reiterate Trading BUY. Although the major improvements to the company’s bottomline were mainly attributed to the compensation for non-implementation of higher water tariffs and did not involve any physical cash inflow until the court hands down its decision, the improvement in P&L is indeed a sentiment booster. Furthermore, the group’s move into the lucrative O&G field as well as both the continuous flow of O&G as well as rural water supply contracts are sufficient reasons for investors to cheer. Therefore, we are keeping our Trading BUY recommendation, with the stock’s fair value revised higher to RM2.08. This implies a mere 3x forward FY12 EPS (changing from a book based valuation).
Source: OSK
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