- We maintain our BUY call on Puncak Niaga Holdings Bhd (Puncak Niaga) with a fair value of RM4.03/share – a 40% discount to its RNAV of RM6.72/share.

- For the 9MFY13 period, Puncak Niaga’s revenue fell by 25% to RM851mil from RM1.1bil a year earlier.

- Net profit fell by 14% to RM177.9mil (from RM207mil a year earlier) due mainly to lower contributions from its oil & gas arm (on deferment of several projects to next year by Petronas), higher overhead costs, and additional costs to remedy works of non-performing sub-contractor for its construction arm.

- On an annualised basis, earnings made up 98% of our fullyear forecast of RM241.4mil, and 96% of consensus.

- Note that its FY12 numbers were restated, as 70%-owned Syabas has been equity accounted following the adoption of new accounting standards.

- We are optimistic about a final resolution to the water impasse in Selangor, with the fifth and latest offer made on Nov 21. Puncak Niaga, along with other water concessionaires, have until Dec 4 to decide on the offer.

- In its 9M result notes released yesterday, Puncak Niaga stated that it is “hopeful and remains committed to supporting an imminent resolution” to the restructuring of the water services sector in Selangor.

- While news reports have emerged that Puncak Niaga might seek a 15% ROE for the equity portion (instead of the 12% offered), we opined that a resolution is very likely given the renewed support and talks between the federal government, state government and Pengurusan Aset Air Bhd (PAAB).

- There is also a possibility of an arbitration process for the amount sought.

- We also understand that PAAB has been roped in for the state government’s latest offer, as the former will eventually own the water assets. The state government would then lease the assets from PAAB and operate with a service licence.

- The new offer is exactly the same as the previous one -RM2.5bil for Puncak Niaga Sdn Bhd (100% stake and assets) and RM3.2bil for Syabas (70% stake and assets). Maintain BUY on Puncak Niaga.

Source: AmeSecurities