Puncak’s EGM to decide on the proposed disposal of its water assets and  operations  is  set  to  be  held  later  today.  Maintain  TRADING  BUY with  our  SOP-based  TP  unchanged  at  MYR4.01  (36.9%  upside).  We continue to advise  existing shareholders to vote for the proposal and walk away with total net proceeds of MYR1.56bn. Management remains committed to announcing a special DPS of at least MYR1.00. 

Salient details.  To recap,  Puncak  Niaga (Puncak)  agreed  in Nov 2014 to  sell its  100%  stake  in  Puncak  Niaga  SB  and  70%  stake  in  Syarikat Bekalan Air Selangor SB  (Syabas)  to  Kumpulan Darul Ehsan  Bhd  for a total  cash  consideration  of  MYR1.56bn.  Its  EGM  to  decide  on  the proposed  disposal  of its  water  assets  and  operations  is set  to  be  held later today,  with minimum 75% approval required from its shareholders for  the  disposal  exercise  to  proceed.  We  note  that  Puncak’s  single largest  shareholder  Tan  Sri  Rozali  Ismail  –  with  an  effective  stake  of 40.9% – has given his undertaking to support the proposed disposal. We continue to advise investors to vote for the proposed disposal to put an end to the much-delayed saga after six years of protracted negotiations.

Completion  by January.  According to the circular,  the  entire  exercise will  be  completed  by  as  soon  as  mid-Jan  2015.  Upon  completion, management remains committed to announcing a special DPS of at least MYR1.00.  This  could  potentially  translate  into  a  total  cash  payout  of MYR411.7m  based  on  its  outstanding  share  base  (excluding  treasury shares). 

O&G play post-disposal.  Upon completion of the disposal, Puncak will be  a  pure  oil  and  gas  (O&G)  play  via  its  100%-owned  subsidiary  in Puncak Oil & Gas SB, which owns a derrick lay barge. The group  has secured Package B of the Pan Malaysia  integrated  offshore  installation contract worth MYR1.8bn over a 3-year period from 2014 to 2016. 

Maintain  TRADING  BUY.  All  in,  we  maintain  our  TRADING  BUY  call with our fully-diluted SOP-based TP unchanged at MYR4.01. Share price has  recovered  by  some  25%  over  the  past  three  weeks  after  having retraced from a high of MYR3.71 in tandem with weakness in local equity market over the last two months. That said, we see potential for further upside as we do not discount the possibility of  a further dividend  windfallto better reward shareholders amidst current market volatility.

Source: RHB