News    Puncak Niaga Holdings Bhd (Puncak) announced that its wholly-owned subsidiary, GOM Resources had on 12 July 2013 received the “Baseline Schedule” from Petronas Carigali for SKO Pipeline Replacement Project (Tukau Pipeline), under the contract of the Integrated Transportation and Installation of Offshore Facilities Year 2010 – 2012 (Extension 2013). 

The duration of the Contract is 9 months from April – December 2013.

Comments    We are not entirely surprised by the news as we believe this is part of GOM Resources’ contract extension by Petronas. Recall, it was appointed as Offshore Installation Contractor (OIC) that entails a 3+1+1 contract (2010-2014) from Petronas in 2012. 

Contract could worth RM100m.  Assuming an average charter rate of RM360k/day (based on the recent project secured in March 2013) and tenure of 9 months (approximately 270 days), the contract could worth about RM100m.

Hence, assuming a 10% net margin, we expect the project to contribute about RM10m or 2.4 sen/share to Puncak.

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

Post GE13, we understand that the Selangor State government (SSG) is giving water-related issues the highest priority and willing to resolve matters with government, PAAB, and Puncak. Hence, we may finally see some “light at the end of the tunnel” for the Selangor’s water sector going forward. 

Forecast   No change in our earnings estimates at this juncture pending more clarification from management on the project. Even if the project is worth RM100m, it is well within our estimates.

Rating   Maintain OUTPERFORM

We reiterate our OUTPERFORM rating on Puncak as we believe it has started to gain recognition, especially after SSG and Federal government is on the verge to an amicable solution on resolving the state’s water consolidation issues in the near  to medium term.

Valuation    We maintain our Target Price of RM3.50, based on SOP derived valuation. 

Risks   Prolonged water consolidation issues.

Source: Kenanga