RHB calls ‘sell’ on Puncak after stock rallies 56%

by **Cals** Thu 18 Jul 2013, 10:09

RHB calls ‘sell’ on Puncak after stock rallies 56%
Business & Markets 2013
Written by Afiq Isa of theedgemalaysia.com
Thursday, 18 July 2013 09:56

KUALA LUMPUR: The sale of PUNCAK NIAGA HOLDINGS BHD []’s water assets to the Selangor government will stay shrouded in political uncertainty until the federal government takes a stand on the issue, said an analyst while cautioning on the recent sharp spike in Puncak’s share price.

In a note yesterday, RHB Research downgraded Puncak to “sell” from “neutral”, and highlighted that several terms of the deal have yet to be disclosed, namely the settlement of borrowings related to the water assets and the receivables due from the Selangor government.

According to RHB analyst Kong Heng Siong, the federal government has to confirm its intention to consummate the deal which will see the consolidation of four water concessionaires by the Selangor government — Puncak Niaga Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Konsortium Abass Sdn Bhd and Syarikat Pengeluaran Air Selangor Sdn Bhd.

“Prime Minister Datuk Seri Najib Razak has yet to make a public statement on the issue. With the Umno elections coming up in November, we envisage the current water deal deadlock in Selangor may be resolved later rather than sooner.

“There is also a possibility the federal and Selangor governments may instead focus on pushing through the official awarding of the Langat 2 water treatment plant over the near term,” he said.

In a previous proposal in February, the state government had valued PNSB and Puncak’s 70% owned Syabas at RM5.6 billion.

While the multibillion ringgit offer indicates a higher upside for Puncak shares, RHB noted that a majority of the proceeds will go into settling the existing liabilities of Puncak’s subsidiaries — RM1.8 billion in borrowings for PNSB and RM4 billion in debt for Syabas.

“Netting this off, we estimate that Puncak could pocket net cash proceeds of just below RM1 billion should the offer go through, which translates into cash per share of RM2.42,” said Kong.

“Nonetheless, we advise investors to exercise caution as the proposal’s terms have yet to be finalised and due to the inherent political risks,” he said.

The research house has pegged Puncak at a fair value of RM2.51.

Shares in Puncak have gained more than 56% since the beginning of July, peaking at a four-year high of RM2.97 on July 16 on speculation of a potential cash windfall for the company from the water assets deal.

The counter closed four sen or 1.42% lower to RM2.78 with 4.67 million shares traded yesterday.

This article first appeared in The Edge Financial Daily, on July 18, 2013.