Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: RHB
Puncak Niaga Holdings Bhd
(Jan 27, RM2.55)
Maintain underperform at RM2.53 with fair value RM2.64: After receiving some clarifications from the Selangor Menteri Besar, Puncak Niaga on Wednesday released some details on the Selangor government's third offer of RM9 billion for the assets of all four water concessionaires in Selangor. At first glance, it may appear like a good deal for Puncak as the state government is undertaking the liabilities, but the numbers do not quite add up.
Among the terms is a clause that says the Selangor government will take over all the liabilities of Puncak Niaga (M) Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor (Syabas) as at Dec 31, 2009, subject to negotiation and due diligence (the state government will have the right to adjust the offer price based on its findings).
We note that the total liabilities of all the four water concessionaires alone amount to RM10.64 billion, assuming the state government extends the same terms to Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Kumpulan Abass (Abass). Adding the equity portions payable for just PNSB and Syabas alone, as explained below, will increase the 'offer' to RM11.39 billion, which is well above the reported RM9 billion figure, and not yet factoring in equity portions for Splash and Abass.
We believe Puncak is unlikely to accept, as we estimate the state government's offer values Puncak at RM2.23, which is lower than our fair value. The state government valued the equity of PNSB at RM694.2 million (RM646.2 million payable to ordinary shareholders; RM48 million to preference shareholders). The equity of Syabas was valued at RM348.91 million (RM103.91 million payable to ordinary shareholders; RM245 million to loan stockholders).
We maintain our earnings forecast. The risks include: (i) whether compensation arising from the delayed 37% tariff hike is paid; (ii) the 37% tariff hike is granted; (iii) lower than expected variable costs, in particular chemical costs; and (iv) water sector restructuring completes earlier than expected.
We maintain our view that the water sector restructuring is not a stroll in the park given: (i) the pricing issue; and (ii) the tussle for the lucrative operation and maintenance (O&M) contract post the restructuring. Similarly, we continue to believe that the long overdue 37% scheduled tariff hike (or the 'compromise' 15% to 20% hike reported not too recently) is unlikely to happen anytime soon without the blessing of the Selangor government. Indicative fair value is maintained at RM2.64, at a 30% discount to its discounted cash flow-derived net present value of RM3.77 per share (based on WACC of 11.5%). Maintain 'underperform'. ' RHB Research Institute Sdn Bhd, Jan 27
This article appeared in The Edge Financial Daily, January 28, 2011.
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: RHB
Puncak Niaga Holdings Bhd
(Jan 27, RM2.55)
Maintain underperform at RM2.53 with fair value RM2.64: After receiving some clarifications from the Selangor Menteri Besar, Puncak Niaga on Wednesday released some details on the Selangor government's third offer of RM9 billion for the assets of all four water concessionaires in Selangor. At first glance, it may appear like a good deal for Puncak as the state government is undertaking the liabilities, but the numbers do not quite add up.
Among the terms is a clause that says the Selangor government will take over all the liabilities of Puncak Niaga (M) Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor (Syabas) as at Dec 31, 2009, subject to negotiation and due diligence (the state government will have the right to adjust the offer price based on its findings).
We note that the total liabilities of all the four water concessionaires alone amount to RM10.64 billion, assuming the state government extends the same terms to Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Kumpulan Abass (Abass). Adding the equity portions payable for just PNSB and Syabas alone, as explained below, will increase the 'offer' to RM11.39 billion, which is well above the reported RM9 billion figure, and not yet factoring in equity portions for Splash and Abass.
We believe Puncak is unlikely to accept, as we estimate the state government's offer values Puncak at RM2.23, which is lower than our fair value. The state government valued the equity of PNSB at RM694.2 million (RM646.2 million payable to ordinary shareholders; RM48 million to preference shareholders). The equity of Syabas was valued at RM348.91 million (RM103.91 million payable to ordinary shareholders; RM245 million to loan stockholders).
We maintain our earnings forecast. The risks include: (i) whether compensation arising from the delayed 37% tariff hike is paid; (ii) the 37% tariff hike is granted; (iii) lower than expected variable costs, in particular chemical costs; and (iv) water sector restructuring completes earlier than expected.
We maintain our view that the water sector restructuring is not a stroll in the park given: (i) the pricing issue; and (ii) the tussle for the lucrative operation and maintenance (O&M) contract post the restructuring. Similarly, we continue to believe that the long overdue 37% scheduled tariff hike (or the 'compromise' 15% to 20% hike reported not too recently) is unlikely to happen anytime soon without the blessing of the Selangor government. Indicative fair value is maintained at RM2.64, at a 30% discount to its discounted cash flow-derived net present value of RM3.77 per share (based on WACC of 11.5%). Maintain 'underperform'. ' RHB Research Institute Sdn Bhd, Jan 27
This article appeared in The Edge Financial Daily, January 28, 2011.
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