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

- The company has yesterday entered into a sale and purchase agreement to dispose of its 100% and 70% stakes in Puncak Niaga Sdn Bhd (PNSB) and Syabas, respectively, to Pengurusan Aset Air Selangor Sdn Bhd (PASSB) for RM1.55bil.

- The proposed disposals comprise:-

(i) Entire equity interest in PNSB comprising 10mil shares worth RM1.07bil and 48mil cumulative convertible redeemable preference shares (PNSB CCRPS) worth RM48mil for a total cash consideration of RM1.118mil; and

(ii) 70% equity stake in Syabas comprising 45mil Syabas shares for RM225.8mil, and RM212mil nominal value of redeemable convertible unsecured loan stocks (Syabas RCULS) for RM212mil.

- The consideration is based on the offer by Kumpulan Darul Ehsan Bhd that Puncak had accepted in-principle in June.

- Puncak intends to distribute RM534.3mil from the proceeds as cash dividends to shareholders within three months. Based on the current shares outstanding, the payout translates to RM1.29/share, or a yield of 37%.

- Puncak intends to utilise RM1.02bil from the proceeds for future investments which may include expansion into the oil & gas businesses and other ventures.

- According to the group, the disposal consideration for PNSB represents a discount of between 14% and 25% to the indicative valuation of RM1.3bil-RM1.5bil as determined by an independent valuer. Meanwhile, the Syabas disposal consideration is at a 65%-70% discount to the indicative valuation of RM648mil-RM740mil.

- The inking of the agreement is much-welcomed following protracted talks between the various stakeholders to restructure the water supply business in the state for years.

- We advise shareholders to accumulate to enjoy the dividend windfall of RM1.29/share (or RM1/share based on the fully-diluted shares of 534.6mil).

- The EGM is expected to be called soon with the proposed disposal to be completed in 1Q15.

- However post-disposal, Puncak may be classified as a cash company and trigger Practice Note 17 given that water treatment and supply is a core business for the group. Hence, we maintain our HOLD call on Puncak until we see further clarity on the group’s future business plans.

Source: AmeSecurities