Puncak  (PNH)’s  management  has  turned  down  the  Selangor  state government  (SSG)’s  latest  takeover  offer  and  reaffirmed  its  previous proposed changes to the offer terms. That said, we remain hopeful that the  proposed consolidation exercise would be completed sooner rather than later now that the Federal Government and SSG are jointly pushing through  the long-awaited  reforms.  Maintain  BUY  on  PNH,  with  our  FV unchanged at MYR5.22.

• Reaffirming  proposed  changes.  In  a  filing  on  Bursa  Malaysia yesterday,  PNH  restated  its previous  proposed changes to the terms in the SSG’s offer. These include:1)  Total equity contribution to be paid to PNH should include an annual compounded return of 15%; 2)  Removal  of  the  requirement  for  due  diligence  post-acceptance  of the offer; and 3)  Waiver  of  the  requirement  for  water  assets  to  be  acquired  by  the Federal Government via Pengurusan Aset Air Bhd (PAAB).
• Playing  the  waiting  game?  Now  that  PAAB  is  willing  to  absorb  the MYR556.3m  shortfall  between  PNH’s  water-related  assets  and borrowings,  management’s  refusal  to  accept  the  offer  was  a  surprise. Nonetheless, we note that  Gamuda (GAM MK; BUY;  FV: MYR5.45) has officially rejected  SSG’s  offer  for its 40%-owned  Syarikat Pengeluar Air Sungai Selangor  (Splash). Given that  the  takeover  offer for PNH’s water operations  is conditional upon  acceptance by  the remaining three  water concessionaires,  we  believe  PNH’s  management  could  be  adopting  a wait-and-see approach in the hope of an  improved offer, in case  there is potential for a revision in SSG’s offer for Splash.
• Maintain BUY. All in, we remain hopeful that the proposed consolidation exercise  would  be  completed  sooner  rather  than  later,  now  that  the Federal Government and SSG are working  together to  push through the long-awaited  reforms.  Maintain  BUY  on  PNH,  with  our  SOP-based  FV unchanged at MYR5.22.

Recommendation Chart

Source: RHB