PUNCAK (FV RM1.82 - TRADING BUY) 1QFY12 Results Review: Back on Course?

Puncak Niaga Holdings (Puncak)’s 1QFY12 net profit of RM68.4m was above market expectation. Although the improvement was mainly due to the recognition of a higher water tariff compensation without any physical cash flowing in until the court hands down judgment, this may still be enough to cheer investors. We also see higher profit contribution from its Oil & Gas (O&G) unit as the monsoon season ends. That said, we are revising up our profit estimates for the next two years and keeping our Trading BUY on Puncak, with a Fair Value of RM1.82. 

Above expectation. Thanks 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, Puncak’s net profit of RM68.4m for 1QFY12 was above our and street estimates. That said, the substantial improvement was also attributed to the marginal increase in operating cost. Apart from that, its Oil & Gas division has begun to generate a Profit Before Interest and Tax of RM7.1m even though the quarter under review was seasonally slower as the pace of jobs was usually affected by the monsoon rains.

Higher O&G contribution in the pipeline? As the group’s legal dispute with the Selangor State Government continues, Puncak has included its  claim for water tariff compensation from  the state government under long-term trade receivables as at 31 March 2012. Meanwhile, we also understand that the newly acquired Global Offshore (M) SB (GOM) has secured a lucrative O&G pipe maintenance project worth about RM500m, which will keep the unit busy this year. We expect more income from GOM moving into the second quarter as the monsoon season comes to an end. Meanwhile, Puncak is also bidding for various water projects, with margins for its water and O&G projects estimated to be in the mid-teens. Considering that the 1Q results beat our expectation on rising income from the O&G unit, we are revising up our FY12 and FY13 estimates by 65.8% and 64.7% respectively.

Trading BUY. While we reckon that the major improvements to the company’s bottomline were mainly attributed to the compensation for non-implementation of higher water tariffs in the absence of 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 and the continuous flow of contracts is sufficient reason for investor to  cheer. Therefore, we  are  keeping our Trading BUY recommendation, with  a fair value of RM1.82, derived from 0.7x FY11 B/V, which was the benchmark used before adjustments for IC Interpretation 12.

Source: OSK