Puncak Niaga received a RM5.6bn offer from KDEB to take over 100% of PNSB and a 70% of Syabas. Evaluating the offers is not easy - information is limited and the offer letters contain ambiguous terms and conditions. As our back-of-envelope calculations are based on certain assumptions and derives a wide range of potential offer amounts (from –RM4bn to RM5.6bn), we will not speculate on the price tag for now. We also rule out the possibility of any deal being concluded as the polls near. The stock is still a Trading BUY with the FV still at RM2.08, due to its undemanding valuation, rising O&G contributions and buoyant investor sentiment.
RM5.6bn offer. Yesterday, Puncak Niaga announced the indicative terms and conditions of KDEB’s proposal to acquire a 100% stake in Puncak Niaga SB (PNSB) and 70% of Syarikat Bekalan Air Selangor (Syabas). The preliminary offer for PNSB amounts to RM2.48bn, of which RM1.12bn is the value of equity plus return on equity at 12% p.a. while remaining RM1.36bn is the value assumed for the water assets. Separately, KDEB valued the 70% stake in Syabas at RM3.12bn, in which the equity value plus return on equity at 12% p.a. came to RM437.8m whilst the pro rata share of water assets to be assumed is at RM2.68bn. That said, a major chunk of the RM9.65bn offer to four water concession companies goes to PNSB and Syabas, at a total combined value of RM5.6bn.
RM5.6bn offer. Yesterday, Puncak Niaga announced the indicative terms and conditions of KDEB’s proposal to acquire a 100% stake in Puncak Niaga SB (PNSB) and 70% of Syarikat Bekalan Air Selangor (Syabas). The preliminary offer for PNSB amounts to RM2.48bn, of which RM1.12bn is the value of equity plus return on equity at 12% p.a. while remaining RM1.36bn is the value assumed for the water assets. Separately, KDEB valued the 70% stake in Syabas at RM3.12bn, in which the equity value plus return on equity at 12% p.a. came to RM437.8m whilst the pro rata share of water assets to be assumed is at RM2.68bn. That said, a major chunk of the RM9.65bn offer to four water concession companies goes to PNSB and Syabas, at a total combined value of RM5.6bn.
Difficult to assess the offers. Despite the price tag for PNSB and Syabas being made known, we find it tricky evaluating both offers since that no specifics were mentioned about the way to derive actual cash value offered for both the companies. We are unsure if the total value of the company or equity contribution plus return on equity at 12% p.a. mentioned in the offer letter is the final cash value to be paid to Puncak Niaga for its equity stake in both companies. Other issues are over the outstanding liabilities in the respective company that the offer letter mentioned would be assumed by KDEB. We may need to deduct the gross or net debt position from the total value or equity value stated in the offers, in order to gauge the possible price tag. We are also short on details pertaining to the gross and net debt positions of PNSB and Syabas respectively, but decided to assume the consolidated number reported as at 30 Sept 2012 being the combined borrowings and cash positions of the two units to ease our hypothesis calculation. Based on the limited information, we derived such a wide range of values (from –RM4bn to RM5.6bn) as the possible cash offer for the units and thus, prefer not to speculate on the potential final price tag at this juncture.
No immediate deal in sight. The offer price aside, we would like to reiterate that the timing of the offer could be better. Meanwhile, we retain the view that the proposed acquisitions will likely be affected by various uncertainties given the fact that the polls could be called anytime in the next few weeks and this type of M&A could take months to complete. As KDEB is an investment arm of the state of Selangor’s administration, the impending dissolution of the Selangor State Assembly may cause confusion as to the ultimate decision maker of this exercise. Undeniably, KDEB has its own professional management but we believe these type of transactions will need the blessings of the Menteri Besar and, possibly, the approval of the State Assembly.
Two weeks to accept the offers. Puncak Niaga said the board and management of the company will review the respective offers before replying to KDEB. The deadline stipulated in KDEB’s letters dated 20 Feb 2013 is that Puncak Niaga needs to give its decision by 6 March 2013 or any such other extended or revised closing date that may be decided by KDEB. Meanwhile, Malaysiakini said SPLASH will meet the State Government next week to get more details on the takeover offer. We suspect Puncak Niaga also may need to seek further clarification from the state government, especially since the offer letter lacks important details, before the board can make its preliminary decision.
Reiterate TRADING BUY. While we continue to think there will be no immediate deal in sight from KDEB’s latest offers, we think any offer will serve to warm investors up to Puncak Niaga. We also focus on the company’s undemanding valuation although we acknowledge that the major improvements to the company’s bottomline of late were mainly attributed to the compensation for the non-implementation of higher water tariffs, which is currently only in the books and will not involve any physical cash inflow until the court delivers its judgment. Nonetheless, the improvement in its P&L is indeed another sentiment booster. In addition, the group’s successful move into the lucrative O&G field on top of its rural water supply projects are also sufficient reasons for investors to cheer. Therefore, we are maintaining our TRADING BUY recommendation, with the stock’s fair value kept at RM2.08. This implies a mere 3x forward FY12 EPS.
Two weeks to accept the offers. Puncak Niaga said the board and management of the company will review the respective offers before replying to KDEB. The deadline stipulated in KDEB’s letters dated 20 Feb 2013 is that Puncak Niaga needs to give its decision by 6 March 2013 or any such other extended or revised closing date that may be decided by KDEB. Meanwhile, Malaysiakini said SPLASH will meet the State Government next week to get more details on the takeover offer. We suspect Puncak Niaga also may need to seek further clarification from the state government, especially since the offer letter lacks important details, before the board can make its preliminary decision.
Reiterate TRADING BUY. While we continue to think there will be no immediate deal in sight from KDEB’s latest offers, we think any offer will serve to warm investors up to Puncak Niaga. We also focus on the company’s undemanding valuation although we acknowledge that the major improvements to the company’s bottomline of late were mainly attributed to the compensation for the non-implementation of higher water tariffs, which is currently only in the books and will not involve any physical cash inflow until the court delivers its judgment. Nonetheless, the improvement in its P&L is indeed another sentiment booster. In addition, the group’s successful move into the lucrative O&G field on top of its rural water supply projects are also sufficient reasons for investors to cheer. Therefore, we are maintaining our TRADING BUY recommendation, with the stock’s fair value kept at RM2.08. This implies a mere 3x forward FY12 EPS.
Source: OSK
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