- Puncak Niaga Holdings Bhd announced that its wholly-owned subsidiary, Puncak Niaga (M) Sdn Bhd (PNSB) has entered into a water abstraction agreement with LUAS (Lembaga Urus Air Selangor).

- In the agreement, Kumpulan Darul Ehsan Bhd (KDEB) has granted PNSB the rights under the former’s licence to abstract water from the water source at the Bernam River Headworks water treatment plant (WTP).

- The extraction will be will be an initial period of three months (1 Aug to 31 Oct) and is subject to renewal for further three-month periods.

- Note that PNSB has been tasked with operating the Bernam River Headworks WTP since Aug 2013. It has a design capacity of 25MLD.

- According to Puncak Niaga’s annual report, 19mil m3 of raw water was drawn from the Bernam river last year (2% of the total volume of 770mil m3).

- We believe that the water abstraction licence is an interim measure as the group strives to finalise the definitive agreement on the proposed takeover offer for its 100% stake in PNSB and 70% stake in SYABAS for RM1.55bil.

- The group is expected to seal the deal within the next two months, after which, an EGM will be called to obtain shareholders’ approval.

- We opine that the inking of agreement could be expedited with growing calls for the replacement of Tan Sri Abdul Khalid Ibrahim by Datuk Seri Dr Wan Azizah Wan Ismail as the Menteri Besar of Selangor.

- There have been talks for a revision of the water consolidation exercise if Khalid is replaced. As such, there could been renewed pressure for the signing of the Heads of Agreement between the state and Federal government.

- Executive chairman Tan Sri Rozali Ismail had earlier said that part of the RM1.55bil proceeds from the water sale could be used for a venture into the plantation business. We also think that a portion of the proceeds would be retained for the expansion of its oil & gas business. Maintain HOLD.

Source: AmeSecurities