Puncak  Niaga’s  1QFY14  net  profit  of  MYR46.5m  fell  below  both consensus  and our expectations, reaching just  15.6% and 19.4% of the respective  full-year  estimates,  as  Petronas  deferred  most  of  its  O&G works  to  mid-April  2014.  With  that,  we  slash  our  FY14F  earnings estimate  by  12.5%.  but  leave  our  FY15F  numbers  unchanged  as  we expect  its  O&G  arm  to  pick  up  momentum  come  2HFY14.  Maintain NEUTRAL, with our FV unchanged at MYR3.13.

• Dragged  down  by  O&G.  Puncak  Niaga  (Puncak)’s  1QFY14  revenue dived 24.6% y-o-y to MYR151.7m, dragged down by a lower contribution from its oil and gas (O&G) division following Petronas’ decision to defer most of its works to April 2014. By the same token, PBT sank 18.9% y-oy to MYR63.9m. All in, the company registered 1QFY14 core earnings of MYR46.5m,  down  by  a  more  severe  23.3%  y-o-y,  owing  to  higher effective tax rate recognised during the quarter.  On a sequential basis, revenue  was down  48.6% but  its  bottomline surged  by  102.2%  from a margin improvement in its water segment during the quarter.
• Forecasts and risks. We  are slashing our FY14F earnings estimate by 12.5% while leaving our FY15F numbers unchanged,  as we expect its O&G arm to pick up momentum come 2HFY14. Key risks include further deferment on its O&G-related works and execution risks on the proposed Selangor water consolidation.
• To  decide on  offer.  We expect Puncak’s management to announce its decision on the latest takeover offer of its water assets and operations by the Selangor state government and federal Government in due course. Under the latest proposal, we estimate that Puncak is set to receive net proceeds amounting to MYR1.56bn for its 100% stake in Puncak Niaga SB and 70% interest in Syarikat Bekalan Air Selangor (Syabas).
• Maintain  NEUTRAL.  Having  said  that,  we  are  maintaining  our NEUTRAL call with our FV unchanged at MYR3.13,  as we roll forward our  valuation  to  FY15.  We  caution  that  the  value  of  the  final  offer  for Puncak’s  water  assets  and  operations,  assuming  that  management accepts  the  latest  offer,  is  still  subject  to  changes  upon  completion  of due diligence.

Source: RHB