Period  3Q13/9M13

Actual vs. Expectations Puncak’s 9M13 net profit of RM177.9m missed expectations, accounting for 67% and 68% of our and consensus full-year estimates, respectively. The negative variance was due to higher-than-expected operating costs in its O&G division.

Dividends  No dividend was declared in 3Q13

Key Results Highlights QoQ, despite a slight increase in revenue by 5%, Puncak’s 3Q13 net profit fell by 9% to RM56.0m. Weaker bottomline performance was due to higher costs incurred by its O&G division on higher overheads incurred in expansion plans to venture into more O&G sub-segments. We understand that Puncak is actively looking for new projects across the value chain of O&G sector.

 YoY, 3Q13 net profit declined by 25% mainly attributed to lower revenue and higher operating costs from O&G and construction divisions.

 YTD, earnings fell by 15%, no thanks to operating losses of both construction and O&G segments.

Outlook  Although Puncak’s O&G segment has been hit by higher operating costs, we remain positive as the industry outlook remains vibrant on Petronas’ capex spending plan of RM300b. In fact, most of Petronas projects have been deferred to next year. Hence, we believe in the near-term, Puncak is likely to clinch one or two jobs worth more than RM500m.

 Puncak is also close to dispose its entire water assets in Selangor as it had received “clearer” takeover offer by the state government. Investors are expected to receive a special dividend postwater-takeover exercise.

Change to Forecasts While keeping our FY14 earnings estimates, we shaved our FY13 estimates by 9.6% to reflect higher-than-expected operating costs in its O&G division.

Rating Maintain OUTPERFORM We reiterate our OUTPERFORM rating on Puncak as it will be the prime beneficiary for the Selangor water assets consolidation. We are also upbeat on its O&G division which is actively pursuing jobs.

Valuation  We maintain our Target Price of RM4.05, based on SoP-derived valuation (i.e. SSG’s equity value for its

Selangor water asset and PER of 10x for its O&G FY14E earnings).

Risks to Our Call Prolonged water consolidated process,

 Absence of special dividend

 Absence of new O&G contracts.

Source: Kenanga