Period  4Q14/FY14

Actual vs. Expectations  Above expectations. FY14 core net profit (CNP) of RM248.4m accounts for 111% and 112% of our and street’s full-year estimates, respectively. The positive variance was due to higher-than-expected earnings from O&G and construction divisions.

Dividends  None as expected.

Key Results Highlights  4Q14 net profit increased by 36% QoQ, 255% YoY and 23% YTD boosted by higher O&G and construction earnings. O&G division’s EBIT jumped 270% thanks to higher value of work done in the quarter coupled with stronger margins achieved (EBIT margins enhanced to 17% in 4Q14 vs average 5% in 9M14). Meanwhile construction division’s EBIT rose by 491% driven by stronger orderbook replenishment and construction progress in FY14.

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 end-1H15 following the completion of the deal by end-1Q15.

 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 for now pending more clarification from management in terms of business direction post sale of water business in end 1Q15.

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. We will look to revamp our FY15E earnings estimate pending the conclusion of the deal.

Valuation  Maintain our SoP-based TP of RM3.99, implying a fwd PER of 5.5x (which is a premium to its 3-year fwd-PER average of 3.9x).

Risks to Our Call  Disappointment in O&G earnings. 

Source: Kenanga