• Light at the end of the tunnel? Both Federal and Selangor governments had affirmed their commitment to settle negotiations after Hari Raya, following a meeting between Selangor Menteri Besar Mohamed Azmin Ali and Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili in mid- June. Adding further pressure is the low water reserve margin in the state and delays in the construction of the Langat 2 water treatment plant. Also, Puncak has said that it may rescind the deal if the condition precedents are not met after Ramadhan. It has granted a sixth extension until 13 July to finalize the deal.
• Attractive implied dividend yield of 37.5%. Assuming the deal will finally go through and the RM1/share special dividend or RM535m will be distributed, current share prices offers a very attractive yield of 37%. Currently, it is trading at 48% discount to latest BVPS of RM5.14 and 22% below fully diluted netcash per share of RM3.41 or RM1.83bn {RM221m end Mar 15 + RM1.56bn sales proceeds + RM45m proceeds from warrants and sukuk} based on enlarged shares of 535m.
• Ripe for a triangle breakout. To recap, PUNCAK’s share price nosedived 38% from a high of RM3.74 (12 Nov) to a low of RM2.29 (15 Dec) before consolidating sideways to end at RM2.67 yesterday. The stock appears to be consolidating in a triangle pattern and poised for a breakout soon. A decisive breakout above RM2.73 (downtrend line) will spur prices to retest RM2.85 and (38.2% FR and 200-d SMA) zones. Pushing past RM2.85 would give us the confirmation to achieve our long term objective of RM3.01 (50% FR). Critical supports are located at RM2.58 (S1) and RM2.48 (S2). Cut loss at RM2.45.

Source: Hong Leong Investment Bank Research - 7 Jul 2015