-  We upgrade Puncak Niaga Holdings from a HOLD to a BUY on a higher fair value of RM4.03/share (from RM2.41), based on a lower discount of 40% to its revised NAV of RM6.72/share (previously: 50%).

-  Our new fair value is also based on the take-over offer mooted by the Selangor government in February 2013. Our key assumptions are: (i) the offer is net of water-related liabilities; and (ii) a c.RM2bil in amount owing by SYABAS for treated water purchases (Puncak’s effective 70% stake: ~RM1.4bil) is included in our calculations.

-  Our renewed optimism is largely premised on a series of concerted efforts by all stakeholders to find a resolution to Selangor’s long-standing water impasse.

-  Just over the weekend, The Edge Malaysia reported that Putrajaya has given its assurance to work together with the Selangor government to facilitate the water consolidation process spearheaded by state-backed Kumpulan Darul Ehsan Bhd (KDEB). In return, the Selangor government is tipped to give its blessings and carve out some 150 acres of land in Serdang for the proposed Perdana University Graduate Medical School.

-  We see this as the clearest sign yet of a renewed push between the Federal and Selangor governments to resolve several outstanding issues, most notably the protracted water saga. The Selangor government is reportedly bent on consummating a deal by year-end.

-  We also see SYABAS’ mounting receivables of c.RM2bil as another push factor for Puncak to consider any impending offers for its water assets – albeit at the right price.

-  Interestingly, MKH Bhd announced last week that it had reached a deal to acquire a 100% stake in Puncak Alam Resources Sdn Bhd for RM31mil in return for exclusive development rights to ~550 acres of land in Selangor (opposite the UiTM Puncak Alam campus). The latter is controlled by Tan Sri Rozali Ismail, which is also the controlling shareholder and executive chairman of Puncak.

-  While the latest details on the negotiations are not immediately known (e.g. pricing), Puncak’s risk-reward ratio is fast-improving as the water talks gain traction. Any resolution to it would finally help unleash the deep embedded-value of its water assets (c. 90% of NAV).

-  Last month, Puncak received more offshore pipeline installation jobs under the Tukau Pipeline from PETRONAS Carigali. We have assumed an annual contract replenishment of RM700mil for Puncak’s oil & gas units over the next three FYs.

Source: AmeSecurities