Period  3Q14/9M14

Actual vs. Expectations

 Within expectations. 9M14 net profit of RM166.7m accounts for 74% and 73% of our and street’s, full-year estimates, respectively.

Dividends  None as expected.

Key Results Highlights QoQ, 3Q14 revenue increased by 10% mainly driven by construction division. The segment revenue jumped 213% driven by higher construction billings. Nonetheless, 3Q14 net profit were flat (+1%) dragged down by lower margins in construction division which offset Oil & Gas division’s higher contribution (+7%).

 YoY, despite flat 3Q14 revenue (+1%), net profit was up by 8% mainly contributed by Oil & Gas division. The division

returned to the black in 3Q14 thanks to resumption in Petronas T&I jobs. Recall, operating losses incurred in 3Q13 was due to higher start-up costs and Petronas deferring certain works to April 2014.

 YTD, 3Q14 earnings marginally fell by 6%, due to lower contribution from water division following higher operating expenses incurred this year coupled with impairment loss on trade receivables.

Outlook  Waiting for special dividend. Recall, on 11 November 2014, Puncak announced that it has finally signed SPA with Pengurusan Air Selangor Bhd (PASB) to be taken over by the latter at the price tag of RM1.56b. The group has decided that 34% of the proceeds (RM534.3m or RM1.00 per FD shares) will be distributed to shareholders. This implies 30% dividend yield based on the current price. We expect the special dividend to be distributed in 1H15.

 What’s next? As the Selangor water assets contribute almost all of the group’s profit, there will be a very huge earnings vacuum for Puncak. The group has yet to identify any future investment they will venture in to fill the earnings gap.

 Nonetheless, Puncak mentioned that it would expand within its core businesses, i.e. Oil & Gas (expected to be major earnings contributor), water treatment plant and construction divisions. In addition, Puncak is also exploring opportunities in other business segments namely the plantation sector.

Change to Forecasts Unchanged.

Rating Maintain OUTPERFORM  Finally, Puncak, Selangor state and federal governments have reached an agreed point of pricing for the valuation of the group’s assets and equity. This is after six years of deadlock. More importantly, Puncak will distribute RM1.00 per FD share out of the total RM2.89 proceeds per FD share.

 Nonetheless, post-special dividend payout, we might consider reviewing our call and valuations with downward bias as we could not ascertain what will be the group’s future direction after the sale of its water assets.

Valuation  Maintain our SoP-based TP of RM3.99, implying fwd-PER5.5x (premium to its 3-year fwd-PER average of 3.9x).

Risks to Our Call Disappointment in O&G earnings.

Source: Kenanga