• All eyes on the 9 March dateline. After a 6-year tussle between PUNCAK, Selangor State Government (SSG) and Federal Government, the water saga is one step closer to closure after PUNCAK’s shareholders gave the much-needed approval on 7 Jan’s EGM for the disposal of the group’s assets and operations to the Selangor government.
• Recall that in Nov 2014, the group had entered into a S&P 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 RM1.55bn. In recent press statement, PUNCAK announced that it has granted PASSB a 2nd extension until 9 Mar for the fulfilment of conditions precedent for the sale of its water concessionaire business.
• Overall, we believe the water deal will eventually be completed given the commitment by all parties and the necessity to ensure sustainable water supply to the Klang Valley. Hence, if all things go well, the disposals should be completed by March/April with special dividends to be paid by June/July. Note that the group will distribute RM534.3m (or RM1/share) as cash dividends to shareholders within three months from the completion of the disposals.
• Huge warchest of RM1bn post special dividend. Post disposal, oil & gas business will become the group’s main revenue contributor (about 70-80%). With RM1bn proceeds in hand, the group is looking to expand into either the oil & gas or oil palm plantation business. To this end, its executive chairman Tan Sri Rozali Ismail said that the group is in talks with parties in China, Latin American and Asean to provide maintenance services for the oil & gas industry. Currently, the group has a sole derrick lay barge which is tied to its Pan Malaysia job worth ~RM1.8bn over three years. Rozali is hopeful the above discussions will materialise this year.
• Moreover, Rozali said the group has identified a few estates for its venture into plantation and is currently studying valuations and investment viability.
• Enjoy an implied 37% dividend yield. At RM2.69, PUNCAK is only trading at consensus 5.2x FY15 P/E. Investors will also enjoy a huge implied yield of 37% as a result of the special dividend of RM1.00/fully diluted share to shareholders pursuant to the group’s water assets sale.
• Ripe for a technical rebound after a brief sideways trading. To recap, PUNCAK’s share price nosedived 28.5% from its 52-week high of RM3.76 to end at RM2.69 yesterday as investors were generally concerned about the implications of the political change in Selangor and the potential delays in the water takeover deal. Besides, the sharp fall was in tandem with the selldown of Bursa-listed oil & gas stocks as PUNCAK’s future earnings are closely linked to oil & gas business.
• After trading sideways for the last few weeks, PUNCAK’s finally staged a breakout above the downtrend line from RM3.74 last week. This breakout is likely a precursor to more upside ahead, if the RM2.72 or 30-d SMA level is taken out decisively, supported by bullish slow stochastic indicator. Post RM2.72, PUNCAK’s share prices are likely to retest RM2.84 (38.2% FR) and our long term upside target of RM3.00 (50% FR).
• Key supports are RM2.59 (daily lower Bollinger band) and RM2.49 (22 Dec low). Cut loss at RM2.46.

Source: Hong Leong Investment Bank Research - 24 Feb 2015