Puncak  Niaga  Holdings  Bhd  is  in  talks  with  parties  overseas  to  provide maintenance  services  to  the  oil  and  gas  (O&G)  industries.  Executive chairman Tan Sri Rozali said that the group was in discussions with China and countries in Latin America and Asean, among others, for the services.

Rozali is hopeful the  discussions will materialise this year. He also said the group is looking to diversify into the plantation sector and is currently eyeing some oil palm estates. Yesterday, shareholders of Puncak Niaga approved the  proposed  disposal  of  the  group’s  water  assets  and  operations  to  the Selangor  government  for  a  total  of  RM1.56bn,  as  well  as  the  proposed RM534.3m special dividend. (Source: StarBiz)

Comment:  We  are  neutral  on  this  development,  as  we  had  expected  the shareholders of Puncak to approve both proposals at yesterday’s EGM. The disposal of the group’s water assets is expected to be completed on 16 Jan.

Post water asset disposal, Puncak will need to utilise its estimated RM1bn war chest wisely, and an earnings accretive acquisition or diversification to other  sectors  would  act  as  a  catalyst  for  the  stock.  Doing  so  will  help  to mitigate  Puncak’s  exposure  to  the  O&G  industry,  which  should  be  about 80% of total revenue in 2015 (2014: 40%), based on our forecasts.

We  believe  a  move  into  the  plantation  sector  is  positive  as  a  source  of recurring  income.  However,  much  would  depend  on  pricing  as  we  gather that while CPO prices have been relatively weak, oil palm estates are not necessarily  so.  Management  would  also  need  to  ensure  the  necessary management  experience  is  in  place.  Maintain  BUY  on  Puncak  with unchanged TP of RM3.55.

Source: Affin Hwang Capital Research - 8 Jan 2015