Puncak Niaga - The tussle continues HOLD

kiasutrader

Publish date: Thu, 16 Aug 2012, 09:09 AM

- Maintain HOLD on Puncak Niaga Holdings, with our fair value clipped by 7% to RM1.54 ' as sturdier oil & gas order book prospects are offset by the protracted water industry impasse in Selangor. Puncak has been in the limelight of late where an escalating proxy war to control Selangor's water assets has re-emerged. We are uncertain if a resolution to this long-standing issue can be achieved before the 13^th General Election.

- Firstly, there is a disconnect in the determination of water reserve margins in Selangor. Findings by a special stateled committee have it at 11% vs. 2% as claimed by Syarikat Bekalan Air Selangor (SYABAS). We believe this could be due to the state's policy of measuring the installed capacity at the Water Treatment Plants (WTP) vs. distribution system capacity as gauged by SYABAS.

- Second, the federal government is embarking on several mitigation programmes to avert a potential water crisis by 2014. We gather that an additional RM606mil in federal allocation has been earmarked:

- RM300mil EPU funding for the Selangor government: Channelling water from WTPs with low demand (e.g. Bestari Jaya) to densely populated areas (e.g. Cheras).

- New Sg.Labu WTP (nominal capacity: 105 million litres/day - mld). Phase 1 (45 mld) commenced in March 2012, covering areas within KLIA.

- Upgrading of existing SSP1 & SSP3 plants: pumping system and distribution network (i.e. laying more pipes).

- On the flipside, the Selangor government is reportedly outlining a RM1bil capex plan to boost the capacity of WTPs under its ambit by 50% through containerised treatment technology that can be installed within a year. Via this, Selangor aims to be water-sufficient until 2020 by boosting production capacity reserves to 18% by March 2013 (5,139 mld).

- Third, the Selangor government is set to make a fresh bid to control the water supply chain in the state next month at 'market prices'. But, apart from pricing/ funding structures, differences in the valuation of state-owned physical water assets could derail this plan, we foresee. Furthermore, the status of Langat 2 remains unresolved.

- We have raised our oil & gas order book forecast to RM700mil over FY12F-FY14F ' anchored by more Offshore Installation Contracts (OIC) from Petronas. Puncak continues to eye marginal oilfield contracts in Malaysia although the timing is uncertain. Our preliminary estimates indicate that any such win may lift its break-up value by RM0.33/share (6.4%) based on an effective stake of 30%.

Source: AmeSecurities

PUNCAK (6807)

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