Puncak Niaga (PNH) announced on Bursa  that  it has received  an  offer of MYR1.5bn from the Selangor state government via KDEB to take over its water operations.  The Federal Government has also agreed to take over  the  water  assets  by  assuming  the  liabilities  involved.  Upon acceptance  of  the  offer,  PNH  would  receive  net  proceeds  of  MYR3.78 per share.  Upgrade  to BUY (from Sell),  with our SOP-based FV bumped up to MYR5.22 (from MYR2.51).

• Revised  terms.  In  this  revised  offer  from  Kumpulan  Darul  Ehsan  Bhd (KDEB), while the equity value to be paid to PNH for  its  100% stake in Puncak  Niaga  SB  (PNSB)  and  70%  stake  in  Syarikat  Bekalan  Air Selangor (Syabas)  remained unchanged at MYR1.5bn, we note that the Federal Government, via Pengurusan Aset Air Bhd  (PAAB), has agreed to  assume  all  outstanding  water-related  debts  owed  by  the  duo.  In essence,  this  implies  that  PNH  would  walk  away  with  net  proceeds  of MYR1.5bn  vis-à-vis  our  previous  estimate  of  MYR1.0bn,  as  we  had previously  factored  in  the  settlement  of  water-related  borrowings  by PNH.
• Board  to  accept  the offer.  Although  the  offer  comes  in below  PNSB’ and Syabas’  (based on PNH’s 70% stake) combined book value of an estimated MYR1.6bn-1.7bn, we believe PNH’s board of directors would likely  accept  the  latest  offer  to  put  an  end  to  the  ongoing  legal  tussle between  PNH  and  the  Selangor  state  government.  We  expect  PNH’s board to revert by 4 Dec and an EGM to be held in 1Q14.  
• Upgrade to BUY.  Upon acceptance of the offer, PNH would receive net proceeds  of  MYR3.78  per  share  vis-à-vis  its  current  share  price  of MYR3.34.  In  view  of  the  quantum  offered,  we  advise  PNH’s  existing shareholders to accept the offer. Post-disposal of its water-related assets and operations, PNH would be left with its O&G operations via its whollyowned subsidiary,  GOM Resources, which operates a derrick lay barge and is widely anticipated to secure some works from the  MYR10bn  Pan Malaysia  Transport  and  Installation  contracts.  We  revisited  our  SOP valuation to take into account: i) the potential cash infusion of MYR1.5bn (from MYR1.0bn), and ii)  the removal of  the 35% discount now that the offer  is  firm.  With  that,  we  derive  our  new  FV  of  MYR5.22  (from MYR2.51). In view of the potential upside of over 50%, we upgrade  our recommendation on PNH to BUY (from Sell).

Financial Exhibits

SWOT Analysis

•  One of the largest treated water suppliers in Selangor state

Company Profile
Puncak Niaga operates  water treatment facilities, as well as supplies and distributes treated water in the Klang Valley via its 70%-owned Syabas.

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Source: RHB