Period  2Q1/1H13

Actual vs. Expectations  Puncak’s 1H13 net profit of RM122m came in below expectations, accounting for 36% and 38% of ours and consensus estimates. The negative variance was mainly due to lower-than-expected profits from its O&G division following Petronas deferring some of the projects to next year.

Dividends  There was no dividend declared in 2Q13.

Key Results Highlights  QoQ, despite an increase in revenue by 58%, Puncak’s net profit was flat at RM61.3m compared to RM60.7m in 1Q13 due to higher effective tax of 26% as compared to 23% in 1Q13. Operationally, EBITDA marginally increased by 4% due to higher revenue from the O&G division.

 YoY, 2Q13 net profit declined by 25% mainly attributed to lower revenue (-26%) and higher operating expenses from O&G division. The division’s revenue and EBIT fell by 33% and 64%. The weak performance was mainly due to lower profit contribution from GOM Resources as a result of Petronas deferring several projects to next year.

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

 Post GE13, we understand that the Selangor State government (SSG) is giving the water issues its highest priority and willing to resolve the matter with federal 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.

Change to Forecasts  While keeping our FY14 numbers, we tweaked our FY13 estimates lower by 19% to reflect the delay of some of the Petronas projects.

Rating   Maintain OUTPERFORM

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

Valuation  Target Price is maintained at RM3.50, based on SOP-derived valuation.

Risks  Prolonged water consolidated process.

Source: Kenanga