- We maintain HOLD on Puncak Niaga Holdings Bhd with an unchanged fair value of RM3.40/share.

- The group is expected to reach a definitive agreement on the proposed takeover offer for its 100% stake in Puncak Niaga Sdn Bhd (PNSB) and 70% stake in SYABAS in two to three months’ time.

- Following that, we expect the group to table the offer in an EGM for shareholders’ approval.

- We expect the deal to go through as executive chairman Tan Sri Rozali Ismail holds a majority 41.3% stake of Puncak. He had said that he intends to exercise his rights and vote in favour of the offer.

- Note that the agreement includes the takeover of all assets and liabilities of SYABAS and those related to water concession business for PNSB.

- As such, we believe that the current court cases involving SYABAS’ claims of water tariff hike payments from the state government, and its payments for treated water to the water treatment plants (WTPs) would likely be dropped.

- The group announced on Tuesday that it has reached an agreement in principle for Kumpulan Darul Ehsan Bhd (KDEB) to purchase the stakes for RM1.55bil in cash (or RM2.90/share on a fully-diluted basis).

- The decision was made following a series of negotiations between Puncak, KDEB/state government and the Federal government.

- The parties will negotiate further to finalise the terms and conditions before reaching a definitive agreement.

- We believe that Puncak will likely utilise a portion of the proceeds to acquire new assets or venture into new businesses within the oil & gas industry.

- The group’s sole derrick laying barge is currently being utilised for a Pan Malaysia job worth ~RM600mil per annum. The group said that it is still looking for new acquisitions in the oil & gas sector.

- We have tweaked our sum-of-parts value to reflect:- (i) the latest terms; (ii) contribution from its oil & gas and construction businesses; (iii) non-water debt; and (iv)proceeds from conversion of sukuk and warrants. Maintain HOLD.

Source: AmeSecurities