- There has been a further delay in the signing of the supplementary agreement to conclude the water deal, reported The Edge Financial Daily today.

- This is because the supplementary agreement – which was earlier expected to be signed yesterday – needs to be amended in order to clarify certain details, said the report.

- While the delay is not a surprise to us (given the prolonged dispute for many years and false alarms in the past), we remain optimistic that a resolution is nigh.

- If anything, we opine a proper scrutiny into details before the supplementary agreement is inked is vital to ensure finality for the water restructuring exercise. Recall that a dispute over certain details in the master agreement has resulted in the current water impasse.

- We remain optimistic about an imminent closure. Both governments had affirmed their commitment to settle negotiations by Hari Raya. This follows a much-needed meeting between Selangor Menteri Besar Mohamed Azmin Ali and Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili last week.

- Adding further pressure is the low water reserve margin in the state (>1%) and delays in the construction of the Langat 2 water treatment plant. Also, Puncak Niaga Holdings Bhd has said that it may rescind the deal if the conditions precedent are not met after Ramadhan. It has granted a sixth extension until 13 July to finalise the deal.

- We maintain NEUTRAL on the sector as we await the conclusion to the water saga. We also expect the offer price for the water concessionaires that had accepted the deal to remain the same.

- We understand that SPLASH is awaiting for the deal with Puncak Niaga to be finalised before it resumes negotiations with the state government to complete the restructuring exercise.

- Recall that Puncak will receive RM1.55bil in proceeds from the sale, of which RM534mil (or RM1.00/share on a fully-diluted basis) will be distributed to shareholders. We maintain HOLD on Puncak with a fair value of RM2.92/share; prospects remain cloudy beyond the special dividend payout.

Source: AmeSecurities Research - 26 Jun 2015