News Puncak announced that it had proposed a free warrants
issue and a 5-year convertible Sukuk bond issue to finance its working capital
and acquisition of new assets. The utilisation of the Sukuk is earmarked for an
acquisition opportunity in the near term while the unutilised Sukuk proceeds
will be used to re-finance the current debt in its oil and gas subsidiary KGL
Ltd.
Comments The
warrants will be issued on the basis of 1 warrant for every 10 existing shares.
The conversion price is at Puncak’s par value i.e. RM1.00 per share. The
expected money raised from the warrants (RM40m) is earmarked for its working
capital purpose. This exercise is eventually to reward the shareholders instead
of paying cash dividends to them.
The RM165m
convertible Sukuk bond will have a 5-year tenure with its conversion price yet
to be finalised. However, based on the proposal, the conversion price should be
at a premium to the 5-day VWAP of Puncak’s shares. Assuming a 10% premium to the
current price of RM1.29 as the conversion price, this will enlarge the
company’s share base by 26% (post-warrant conversion).
We are neutral on
this corporate exercise as the future acquisitions of assets in the oil and gas
sector will somewhat mitigate Puncak’s dependency on its current controversial
and uncertain water business.
Outlook We are
encouraged with Puncak’s move to diversify into other businesses such as oil
and gas as this will minimise the risk of the uncertainties in its Selangor
water business.
The oil and gas
division is expected to record at least a RM500m revenue in FY12. As at 1H12,
it has already achieved RM280m and RM35m in revenue and pre-tax profit
respectively.
Forecast No
changes to our FY12-13E earnings.
Rating MAINTAIN OUTPERFORM
Its water asset is
currently trading at a deep discount and its oil and gas potential is still underestimated
by the market.
Valuation We
have increased slightly our TP to RM3.05
(based on SOP valuation) from RM3.01 as we tweaked our assumption higher for
its oil and gas contribution. We have also factored in the 10% dilution of the
warrants exercise.
Risks Offer
price from SSG being lower than our valuation for its water business.
Source: Kenanga
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