Puncak Niaga - Still muddling along HOLD

- We maintain our HOLD rating on Puncak Niaga Holdings with an unchanged fair value of RM1.55/share. This pegs the stock to a 7% discount on its estimated sum-of-parts (SOP) value.

- Puncak delivered a 3QFY12 net profit of RM78mil, bringing the 9MFY12 total to RM225mil. As with the previous quarters, Puncak did not declare any interim dividends for the current reporting period under review.

- The results constituted 85-86%% of both consensus as well as our estimates. But, we deem this to be in-line with our expectations. We envisage 4Q contributions to slow down towards year-end, due to lower working productivity for the oil & gas division during the monsoon period.

- Core 9MFY12 earnings – at RM225mil – were a significant improvement from the RM16mil loss a year ago. This was the result of:- (i) recognition of scheduled tariff hike for SYABAS effective 1 January 2012; and (ii) ramp-up in recognitions from both its construction as well as oil & gas divisions.

- Over the near term, Puncak seems to be assigning a greater focus on growing its fledging oil & gas businesses – largely under wholly-owned Global Offshore (Malaysia) Sdn Bhd. 

- At the moment, Puncak is busy working on its offshore installation contract (OIC) contracts. We estimate  the group to have secured RM700mil worth of OIC-related works thus far for FY12F, and expect these jobs flows to be sustained over FY13F-14F. 

- Further out, Puncak continues to eye one or two marginal oilfield jobs in Malaysia under PETRONAS’ aggressive capex programme – 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%.

- Based on yesterday’s closing price of RM1.29/share, the market is only assigning an implied value of RM0.26/share or 6% of Puncak’s water assets of RM4.06/share as per our break-up value.  

- But, until there is more clarity on the water impasse in Selangor post elections, we expect Puncak to continue trading at a steep 75% discount to its break-up value.

- The recent expectation of a new takeover offer by the Selangor government in October has since fizzled out, yet again.    

Source: AmeSecurities