Period    3Q12/9M12

Actual vs.  Expectations    The 9M12 results came in slightly below our estimates but were in line with the consensus. The 9M12 net profit of RM225m accounted for 60% and 84% of ours and the consensus' full year FY12 estimates. The lower than expected results was mainly due to higher operating expenses and lower margin contribution from its oil and gas division.  

Dividends  No dividend was declared during the quarter.

Key Result Highlights    The 9M12 net profit of RM225m increased significantly from the just RM0.6m in profits reported last year. Note that the marginal core net profit in the previous 9M11 was dragged down by the impact of the first year implementation of the new accounting standard then for its water concession business. The overall revenue meanwhile increased by 66% due to the additional revenue contribution from its construction division and oil and gas division. To recap, Puncak Niaga secured a RM667m contract for pipe-laying for oil and gas players. This contribution is expected to last until 1H13.

 QoQ, the net profit was flat at RM78m on the back of a 4% increase in revenue. Its oil and gas division recorded a lower pre-tax margin of 5% as compared to 15% and 13% in 2Q12 and 1Q12 respectively. We expect the margin to normalise back to around 12% to 15% in 4Q12.  

 YoY, the net profit surged significantly from a RM5m net profit to RM78m as the its oil and gas division has started to contribute higher to the group. However, the overall lower revenue contribution was mainly due to the less treated water supplied. 

Outlook   Election risks remain a setback for Puncak Niaga due to the uncertainty of the upcoming General Election results. 

Change to Forecasts    We have trimmed down our FY12-FY13E by 14% and 11% respectively as we had reduced our book order assumption on its oil and gas division.  

Rating  MAINTAIN OUTPEFORM

 While election risks remain a setback, the stock could still emerge as a dark-horse should the upcoming election results are in its favour. Hence, we are maintaining our OUTPEFORM recommendation for now, especially we see the worst could be over for PUNCAK.

Valuation    We have reduced our TP to RM2.85 (based on SoP) from RM3.05 due to the downward revision in our earnings.

Risks   A lower than expected takeover price tag for its water concession (below RM2.61 a share).

Source: Kenanga