- We maintain HOLD on Puncak Niaga Holdings Bhd with a lower SOP-based fair value of RM2.80/share (vs. RM2.92/share earlier).

- Puncak posted a PATAMI of RM125mil for 1HFY15, up 18% from RM106mil a year earlier. This is on the back of a 24% decline in revenue to RM129mil.

- Excluding contributions from discontinued operations, Puncak posted a loss net of tax of RM15mil (vs. -RM24mil a year earlier).

- Sequentially, 2Q PATAMI fell 10% to RM60mil, on the back of a 3% growth in revenue.

- Excluding contributions from its discontinued operations, both the water & wastewater, and oil & gas divisions continued to post losses (at RM4mil and RM20mil, respectively). Its construction unit was a bright spot with a segmental profit of RM2mil.

- We cut earnings by 55%-78% for FY15F-17F to account for the slower oil & gas segment. Nevertheless, our call is premised on the completion of the water deal.

- We believe that it is imperative that Puncak Niaga concludes the disposal of its water assets as soon as possible so it can mobilise the proceeds for new business opportunities. This is to maintain earnings sustainability once it exits its water concession businesses.

- Recall that Puncak had granted a two-month extension (until 14 Sept) for the fulfilment of conditions precedent in the sales and purchase agreement. This followed a supplementary agreement that was signed between the Fed and Selangor government on 10 July.

- Management is optimistic that the deal will be concluded soon as major issues had been ironed out in the supplementary agreement. As such, we are hopeful that the deal can be completed by year-end.

- We understand that Puncak will receive the RM1.5bil proceeds as soon as the conditions precedent are met. The dividend payment of RM534.3mil to shareholders (or RM1.00/share on a fully-diluted basis) is also expected to flow through by year-end.

- Future prospects hinge on the RM1bil proceeds that it intends to use for expansion in either the oil & gas or plantation businesses. We understand that management is still on the lookout for opportunities.

- At the current price, Puncak appears attractive given the potential RM1/share cash dividend payout. However, prospects remain cloudy pending clarity of its future plans. We maintain HOLD.

Source: AmeSecurities Research - 26 Aug 2015