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

- The Edge Malaysia recently reported that a tussle is brewing between the Federal and Selangor governments over ownership of certain water assets in the state. It was reported that the dispute could derail the consolidation exercise.

- However, we are unperturbed by this as we believe the deal needs to be wrapped up soon to ensure sustainable water supply (Read our water sector report released today for our rationale).

- Recall that Pengurusan Air Selangor Bhd had earlier requested for an extension until 9 Feb to fulfil certain condition precedents in the sales and purchase agreement with Puncak.

- In a meeting last week, management noted that it is hopeful of concluding the water deal by Chinese New Year with the dividend payout (of RM1/share) expected by May.

- While there could be a minor delay, we are hopeful that the deal could be wrapped up by 1H.

- Notwithstanding that, we remain cautious of Puncak’s future plans beyond the dividend windfall. Post-disposal, Puncak’s core activities would comprise its water construction and oil & gas businesses.

- Recall that the group had secured RM544mil of jobs for its construction division last year. We estimate the group’s current outstanding order book at ~RM400mil and net margins at 5% that would sustain the group earnings for the next few years.

- With a tender book of RM400mil, the group is hopeful of securing more private and public jobs. Potential jobs include effluent pipes for RAPID, as well as replacement of water pipes in Selangor and Kuala Lumpur.

- Puncak may achieve a positive operating profit for FY14F for its oil & gas division due to higher billings from its Pan Malaysia job. Note that the division has been profitable since 2Q14.

- As for its future plans, management noted that it will be selective for its next venture (with RM1bil in cash proceeds from the disposals) in order to extract the most value. It is considering a mix of equity and debt funding for acquisitions and favours brownfield plantation land in Malaysia while it explores opportunities in the O&G sector.

Source: AmeSecurities