Puncak  Niaga  has  agreed  to  the  Selangor  state  government’s  latest takeover offer of its water assets and operations.  Upon completion, it is set  to  receive  net  proceeds  of  MYR1.56bn.  Major  shareholder  Tan  Sri Rozali Ismail made known his intention to vote in favour of the proposal in the upcoming EGM. With that,  we finally see light at the end of the tunnel and upgrade  our call to TRADING BUY,  while we raise our  FV to MYR4.01 (from MYR3.13).

• Good  to  go.  In  its  announcement  to  Bursa  Malaysia,  Puncak  Niaga (Puncak)  has  agreed  to  the  proposed  acquisition  of  its  100%-owned Puncak  Niaga  SB  and  70%-owned  Syarikat  Bekalan  Air  Selangor (Syabas)  by  the Selangor state government via Kumpulan Darul Ehsan. In  return,  Puncak  is  set  to  receive  net  cash  of  MYR1.56bn,  which  is consistent  with  our  previous  guidance.  We  see  the  acceptance  as  a huge step forward after over six  years of negotiations. We note that this latest development is in line with the joint statement released  by Minister of Energy, Green Technology and Water Datuk Seri Dr Maximus Ongkili and Selangor Menteri Besar Tan Sri Khalid Ibrahim back in mid-May.
• Major shareholder to say yes.  Following the acceptance by Puncak’s board of directors, the proposed takeover  offer will now be tabled in an EGM to be convened in due course.  We advise shareholders to accept the offer to put an end to the long-delayed saga. On a side note, Tan Sri Rozali  Ismail,  being  the  executive  chairman  cum  major  shareholder  of the group with an effective stake of 41.3%, has made known his intention to vote in favor of the proposal. With that, we expect the proposal to be approved  accordingly.  We  caution,  however,  that  the  final  quantum  of the offer is subject to changes upon conclusion of due diligence.
• Upgrade to TRADING BUY.  We expect a sharp re-rating in share price to reflect this positive development  which,  in our view,  will pave the  way for the disposal of Puncak’s water assets and operations. Hence, we are taking the opportunity to upgrade our call to TRADING BUY. Our SOPbased FV now stands at MYR4.01 as we:  i) removed the 40% discount pegged previously, and ii) take into account its fully-enlarged share base of  534.6m  vis-à-vis  411.3m  currently  by  factoring  in  potential  warrants and sukuk conversion of 40.8m and 82.5m respectively.

Source: RHB