- Maintain HOLD on Puncak Niaga Holdings, with our fair value
clipped by 7% to RM1.54 – as sturdier oil & gas order book prospects are offset
by the protracted water industry impasse in Selangor. Puncak has been in the
limelight of late where an escalating proxy war to control Selangor’s water
assets has re-emerged. We are uncertain if a resolution to this long-standing
issue can be achieved before the 13th General Election.
- Firstly, there is a disconnect in the determination of
water reserve margins in Selangor. Findings by a special stateled committee
have it at 11% vs. 2% as claimed by Syarikat Bekalan Air Selangor (SYABAS). We
believe this could be due to the state’s policy of measuring the installed capacity
at the Water Treatment Plants (WTP) vs. distribution system capacity as gauged
by SYABAS.
- Second, the federal government is embarking on several mitigation
programmes to avert a potential water crisis by 2014. We gather that an
additional RM606mil in federal allocation has been earmarked:
- RM300mil EPU
funding for the Selangor government: Channelling water from WTPs with low
demand (e.g. Bestari Jaya) to densely populated areas (e.g. Cheras).
- New Sg.Labu WTP
(nominal capacity: 105 million litres/day - mld). Phase 1 (45 mld) commenced in
March 2012, covering areas within KLIA.
- Upgrading of
existing SSP1 & SSP3 plants: pumping system and distribution network (i.e.
laying more pipes).
- On the flipside, the Selangor government is reportedly outlining
a RM1bil capex plan to boost the capacity of WTPs under its ambit by 50%
through containerised treatment technology that can be installed within a year.
Via this, Selangor aims to be water-sufficient until 2020 by boosting
production capacity reserves to 18% by March 2013 (5,139 mld).
- Third, the Selangor government is set to make a fresh bid to
control the water supply chain in the state next month at ‘market prices’. But,
apart from pricing/ funding structures, differences in the valuation of
state-owned physical water assets could derail this plan, we foresee.
Furthermore, the status of Langat 2 remains unresolved.
- We have raised our oil & gas order book forecast to RM700mil
over FY12F-FY14F – anchored by more Offshore Installation Contracts (OIC) from
Petronas. Puncak continues to eye marginal oilfield contracts in Malaysia although
the timing is uncertain. Our preliminary estimates indicate that any such win
may lift its break-up value by RM0.33/share (6.4%) based on an effective stake
of 30%.
Source: AmeSecurities
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