Broker Call Sell Puncak Niaga due to political risk, says RHB

by **Cals** Wed 17 Jul 2013, 17:04

Broker Call Sell Puncak Niaga due to political risk, says RHB
Business & Markets 2013
Written by Ho Wah Foon of theedgemalaysia.com
Wednesday, 17 July 2013 16:29

KUALA LUMPUR (July 17): RHB Research today downgraded PUNCAK NIAGA HOLDINGS BHD [] (PNH) to “sell” from “neutral”, after pricing in political risk and its recent share price run-up.

“Looking at the Selangor Government’s latest offer to consolidate the state’s water sector, PNH may potentially pocket net cash proceeds of about RM1.0 billion.

“Nonetheless, we advise investors to exercise caution, as the proposal’s terms have yet to be finalised and due to the inherent political risks. Downgrade our call to SELL, with full value now at RM2.51,” said RHB.

The research house added: “Given the potential downside following recent share price run-up, we are downgrading our call to sell.”

At 3.59 pm, PNH was trading at RM2.78, down 4 sen or 1.4%, on trades of some 4 million shares.

The stock had gained sharply in recent weeks after the Selangor Government stated that the Federal Government had approved the move by the opposition.

In a detailed research report today, RHB said Selangor‘s offer in March valued PNH’s 100% interest in Puncak Niaga SB (PNSB) and 70% stake in Syarikat Bekalan Air Selangor SB (Syabas) at RM5.6 billion.

“While the quantum may seem enormous at first glance, vis-à-vis PNH’s current RM1.3 billion market capitalisation, it has yet to take into account the company’s borrowings to pay off at PNSB and Syabas level to complete the disposal of its stakes in both firms.

“Netting these off, we estimate that PNH could potentially pocket net cash proceeds of just below RM1.0 billion, which translates into RM2.42 per share.”

For reasons stated, RHB Research is advising investors to be cautious, given that settlement of borrowings related to the water assets and the receivables due from the state Government have yet to be sorted out.

Furthermore, added the research house, Prime Minister Datuk Seri Najib Razak has yet to make a public statement on the Federal Government’s stance.

“With the UMNO election coming up in November, we envisage that the current water deadlock crisis in Selangor will likely be resolved later rather than sooner.

“There is also a possibility that the Federal and Selangor Governments may instead focus on pushing through the official awarding of Langat 2 water treatment plant in the near-term,” RHB added.