- We maintain HOLD on Puncak Niaga Holdings Bhd with an unchanged sum-of-parts-(SOP) based fair value of RM3.40/share.

- Puncak Niaga reported 1HFY14F earnings of RM106mil, 13% lower than RM122mil a year earlier. Revenue fell 12% YoY to RM457mil.

- Its earnings made up 43% of our forecast and 41% of consensus estimates.

- Sequentially, 2QFY14 earnings grew by 29% to RM60mil on the back of a flat revenue growth.

- The sequential improvement was due to a higher contribution from its oil & gas division as its sole derrick laying barge commenced works in April.

- Thus, the division recorded an EBIT of RM7mil vs. a loss of RM18mil in 1QFY14. For the six-month period, it works out to a loss of RM11.1mil.

- Meanwhile, its water division’s EBIT fell 12% YoY to RM223.4mil during the 1HFY14 on the back of lower revenue as a result of the water rationing exercise, higher operating expenses and provision of impairment loss on trade receivables.

- Its construction division reported an EBIT of RM3.3mil vs. a loss of RM5.7mil last year. The improvement was mainly due to a reversal of provision made last year for construction costs incurred.

- Recall that the group has secured RM544mil worth of new construction jobs this year. But these have yet to contribute as they are still in the initial stages.

- As such, we maintain our numbers for now as we expect 2HFY14 earnings to improve with maiden contributions from the construction job as well as higher recognitions from its oil & gas job.

- Note that the group is expected to sign the definitive agreement for the proposed RM1.55bil disposal of its 100% stake in Puncak Niaga Sdn Bhd (PNSB) and 70% stake in SYABAS by next month. The group is expected to use part of the proceeds to expand its oil & gas business as well as for a possible venture into the plantation business.

- Puncak Niaga is also reported to be among four parties shortlisted for the supply of water pipes to the Pengerang Integrated Complex worth about RM300mil. It is also prequalified for the waste-to-energy incinerator project in Taman Beringin, Kepong, estimated to be worth ~RM800mil. Maintain HOLD.

Source: AmeSecurities