Following  our  recent  visit  to  Puncak  Niaga  Holdings  (PNH),  we  expect to  hear  more  on  potential  assets  acquisition  in  its  oil  &  gas  (O&G) segment.  Meanwhile,  we  believe  the  proposed  reform  of  Selangor’s water industry would remain status quo for now due to various political interests  at  stake.  Given  the  recent  run-up  in  its  share  price,  we  are downgrading our call to NEUTRAL, with our FV unchanged at MYR2.00, based on a 3x FY13 P/E. 

- Investment in Syabas almost fully written off. Management indicated that  PNH’s  investment  in  Syarikat  Bekalan  Air  Selangor  SB  (Syabas) totaled  MYR270m  over  the  years  and  is  equity-accounted  for.  The remaining amount of investment in its books is negligible due to previous write-offs. As at 1QFY13, PNH booked in receivables of MYR1.6bn due from  Syabas.  We  believe  this  collection  will  largely  depend  on  the outcome  of  the  ongoing  legal tussle  between  Syabas  and  the  Selangor State Government on the MYR2.7bn water tariff compensation.  

- Nothing  concrete  since  elections.  Management  has  yet  to  hear  from the Selangor State Government on a potential revised offer for its water assets  and  operations  since  the  13th  General  Elections.  Management remains adamant that the current deadlock will soon be resolved, along with  Selangor  Menteri  Besar  Tan  Sri  Abdul  Khalid  Ibrahim  making  the proposed  reform  of  Selangor’s water  industry  his  main  priority.  We  are less optimistic in view of the various political interests at stake, given that the  Barisan  Nasional  (BN)-led  coalition  had  retained  the  Federal Government by a simple majority.

-  More O&G developments likely. BNP’s recently proposed issuance of warrants  and  convertible  bonds  could  potentially  raise  over  MYR200m. Management is looking to expand  the Group’s transport and installation services, possibly through the acquisition of a new barge. We also do not discount  the  possibility  of  potential  assets  acquisition  to  fast  track  its expansion into other O&G sub-segments eg hook-up & commissioning.

- Other water-related projects. PNH also guided that it is exploring other water-related  Private  Finance  Initiative  projects  such  as  sewerage  and solid  waste  management.  We  gather  that  these  contracts  typically average  around  MYR200-MYR300m  each.  Assuming  a  net  margin  of 10%, each contract win could lift Puncak’s bottomline by 8%-10% p.a.

Source: RHB