Period     1Q13

Actual vs. Expectations    Puncak’s 1Q13 net profit of RM60.7m account for only 18% and 19% of ours and consensus estimates respectively. Nonetheless, we deem the results within our expectation as we expect most of Puncak’s FY13 earnings to be delivered in 2H13. 

Dividends    There was no dividend declared in 1Q13

Key Results Highlights    QoQ,  core net profit rose tremendously by 73% to RM60.7m mainly due to low base effect. The lower earnings in 4Q12 were mainly due to impairment of compensation and adjustment on long-term liabilities coupled with higher operating costs for water division. 

YoY,  1Q13 net profit also increased by 22.6%, thanks to higher earnings reported in water division (EBIT: +25 YoY). Nonetheless, its O&G division was making losses in 1Q13 due to higher operating costs incurred by the division following works for 2013 commenced in March 2013. Hence, earnings for O&G division should be higher in coming quarters. Likewise, construction division registered operating losses of RM5.8m due to additional construction cost incurred to remedy the works of non-performing sub-contractor.

Outlook    Although the election outcome is a status quo in Selangor, we understand that the Selangor State government (SSG) is putting the water issues the highest priority and willing to resolve the matters with government, PAAB, and Puncak. Hence, we may see “light at the end of the tunnel” for the Selangor’s water sector going forward.

We also remain Positive on Puncak’s O&G division as we believe the industry outlook remains vibrant given the sector rides on the Petronas’s capex spending plan of RM300b.

Change to Forecasts   No changes in our forecasts as we expect Puncak to report stronger earnings numbers in 2H13.

Rating    Maintain OUTPERFORM

We are keeping our OUTPERFORM rating on PUNCAK despite the status quo General Election outcome as we opine that PUNCAK remains as a Dark Horse as we do not rule out a potential new offer from SSG if and when all parties reached a workable solution.

Valuation     We are maintaining our Target Price of RM2.85 based on SoP-based valuation. 

Risks    Prolonged water consolidated process.

Source: Kenanga