Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: RHB
Puncak Niaga Holdings Bhd
(June 14, RM2.17)
Maintain trading buy at RM2.17 with fair value of RM3.05: Going forward, Puncak hinted of more news flow in terms of O&G contracts, though it declined to provide specific details. We view the impending news flow positively as it indicates Puncak will have an alternative core business to fall back on should the ongoing water restructuring end with Puncak not having an operations & maintenance (O&M) contract. Puncak is keen on turning O&G into a significant earnings contributor going forward, and that growth will be driven by M&A.
We gather from management that although Puncak Niaga is in talks with Bourbon, the focus is on chartering Bourbon's vessels to support Puncak's growing O&G activities, instead of being an agent for Bourbon. Recall that The Edge Financial Daily had reported on June 8 that Puncak was in talks with Bourbon to be the latter's agent for Southeast Asia, citing industry sources.
We understand the vessels will be chartered for supporting the recently acquired pipe laying barge (DLB 264) since the barge is quite old (43 years old) and lacks a propeller engine to move on its own. Also, there are no plans to acquire such vessels as these are costly and used only intermittently to move the barge.
While details are still sketchy at the moment, management has hinted of developing marginal O&G reserves and operating a deepwater supply base in Sabah as among the other scope of O&G work that Puncak is currently exploring. Management said studies are still ongoing and the related capex will be funded via borrowings.
No changes made to earnings forecasts.
The risks include: (1) No compensation for the delayed 37% scheduled tariff hike; (2) 37% scheduled tariff hike is not granted; (3) Higher-than-expected variable costs, in particular, chemical costs; and (4) Little progress in water sector restructuring.
Puncak's indicative fair value is maintained at RM3.05 at a 20% discount to its DCF-derived NPV of RM3.81/share (based on WACC of 11.5%).
We see the O&G business offering better growth prospects vis-''-vis Puncak's mature core water business, though its lack of track record translates into increased earnings risk for the group. With the impending buyout of the water bonds, we are cautiously optimistic that the water sector restructuring will finally make some progress provided the following issues are addressed: (1) The pricing issue (2) The tussle for the lucrative operation and maintenance contract post restructuring. Maintain 'trading buy'. 'RHB Research, June 14
This article appeared in The Edge Financial Daily, June 15, 2011.
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: RHB
Puncak Niaga Holdings Bhd
(June 14, RM2.17)
Maintain trading buy at RM2.17 with fair value of RM3.05: Going forward, Puncak hinted of more news flow in terms of O&G contracts, though it declined to provide specific details. We view the impending news flow positively as it indicates Puncak will have an alternative core business to fall back on should the ongoing water restructuring end with Puncak not having an operations & maintenance (O&M) contract. Puncak is keen on turning O&G into a significant earnings contributor going forward, and that growth will be driven by M&A.
We gather from management that although Puncak Niaga is in talks with Bourbon, the focus is on chartering Bourbon's vessels to support Puncak's growing O&G activities, instead of being an agent for Bourbon. Recall that The Edge Financial Daily had reported on June 8 that Puncak was in talks with Bourbon to be the latter's agent for Southeast Asia, citing industry sources.
We understand the vessels will be chartered for supporting the recently acquired pipe laying barge (DLB 264) since the barge is quite old (43 years old) and lacks a propeller engine to move on its own. Also, there are no plans to acquire such vessels as these are costly and used only intermittently to move the barge.
While details are still sketchy at the moment, management has hinted of developing marginal O&G reserves and operating a deepwater supply base in Sabah as among the other scope of O&G work that Puncak is currently exploring. Management said studies are still ongoing and the related capex will be funded via borrowings.
No changes made to earnings forecasts.
The risks include: (1) No compensation for the delayed 37% scheduled tariff hike; (2) 37% scheduled tariff hike is not granted; (3) Higher-than-expected variable costs, in particular, chemical costs; and (4) Little progress in water sector restructuring.
Puncak's indicative fair value is maintained at RM3.05 at a 20% discount to its DCF-derived NPV of RM3.81/share (based on WACC of 11.5%).
We see the O&G business offering better growth prospects vis-''-vis Puncak's mature core water business, though its lack of track record translates into increased earnings risk for the group. With the impending buyout of the water bonds, we are cautiously optimistic that the water sector restructuring will finally make some progress provided the following issues are addressed: (1) The pricing issue (2) The tussle for the lucrative operation and maintenance contract post restructuring. Maintain 'trading buy'. 'RHB Research, June 14
This article appeared in The Edge Financial Daily, June 15, 2011.
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