Puncak Niaga subsidiaries accept S’gor offer to take over water assets

by **Cals** Wed 21 May 2014, 01:44

Business & Markets 2014

Written by Affin IB Research

Tuesday, 20 May 2014 11:06

Puncak Niaga Holdings Bhd
(May 19, RM3.07)
Maintain add with target price of RM3.55: According to a report by Bernama, Puncak Niaga Holdings’ subsidiaries Puncak Niaga (M) Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) have accepted the Selangor government’s offer of RM2.5 billion and RM3.1 billion respectively. Their acceptance of the state government’s offer to take over their water concession business is however subject to the approval of their respective shareholders.

Earlier, shareholders of Konsortium Abass Sdn Bhd had accepted a RM900 million offer for their water concession business. The offers for PNSB, Syabas and Konsortium Abass total RM6.6 billion, which is in line with the amount agreed upon in a memorandum of understanding signed on Feb 26, 2014 between the federal government and Selangor.

With the latest development, the energy, green technology and water ministry said the federal government has decided to postpone the enforcement of Section 114 of the Water Services Industry Act.

We maintain our “add” rating for Puncak Niaga Holdings with an unchanged target price of RM3.55 per share (based on RM2.90 per share water asset value and 65 sen per share for the group’s oil and gas [O&G] division, and 5 times forward earnings).

We see limited downside to Puncak Niaga Holdings’s current share price of RM2.98. It remains to be seen if the group would distribute part of the cash proceeds from the disposal of the water concession to shareholders.

Key risks to our positive view on Puncak Niaga Holdings are last minute hiccups in the sale of its water concession and weaker than expected O&G earnings.

With regard to Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), which is 40%-owned by Gamuda Bhd (“buy”; target price: RM5.43), Bernama reported that the federal and state governments plan to review the price of bulk water supplied by Splash.

We believe that shareholders of Splash are unable to accept an offer which is vastly below net book value. — Affin IB Research, May 19

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This article first appeared in The Edge Financial Daily, on May 20, 2014.