PUNCAK (6807) - Puncak Niaga Holdings - Risk to 37% special dividend
Target RM2.71 (Stock Rating: HOLD)
A statement by the Selangor MB that Puncak's RM1.6bn water asset sale is void due to the asset transfer issues between the state and federal governments caught us by surprise. We are disappointed about this turn of events as Puncak's deal is the most advanced among all the concessionaires. We believe the RM1/share special dividend (37% yield) from the cash proceeds that was expected to be realised this year is now at risk due to likely delays. Puncak remains keen to exit its water business but its fate now rests on an amicable resolution between both sides of the government. We retain our EPS forecasts but cut our target price as we raise our SOP discount from 20% to 40%. Due to near-term uncertainties, we downgrade from Add to Hold.
What Happened
Press reports for the past two days highlighting statements from the Selangor MB Azmin Ali regarding the status of water restructuring in the state have been overall negative. This is in contrast with the milestones made last year. According to the Selangor MB, the sale and purchase agreement (SPA) that Puncak and Air Selangor entered into in Nov 14 is now void after the state government declined to grant a third extension to the master water agreement, which lapsed yesterday.
What We Think
Given the lack of details on the issue of asset transfer between the two governments, the near-term outlook for Puncak has turned less attractive. New information regarding the pr ogress of Puncak's sale and purchase agreement (SPA) suggests potential delays in securing the RM1.6bn cash offer from the state. Puncak remains keen to sell its water assets and may announce an extension to the deal but the outlook from here on hinges on the state and federal governments’ move. If this is resolved within the next 2-3 months, Puncak's water deal and the bumper RM1/share (37% yield) special dividend could still be realised within this year (towards end-2015). We anticipate a likely overhang on the share price and cut our target price as we raise our SOP discount from 20% to 40% due to the emergence of delay and political risks.
What You Should Do
We do not believe the water restructuring plan will fail completely but we expect the near-term outlook to depend on both governments revisiting the master water agreement. However, this may take some time and trigger uncertainties in the weeks or months ahead. Investors may switch to contractors for exposure to job roll-out.
Source: CIMB Daybreak - 11 March 2015
Target RM2.71 (Stock Rating: HOLD)
A statement by the Selangor MB that Puncak's RM1.6bn water asset sale is void due to the asset transfer issues between the state and federal governments caught us by surprise. We are disappointed about this turn of events as Puncak's deal is the most advanced among all the concessionaires. We believe the RM1/share special dividend (37% yield) from the cash proceeds that was expected to be realised this year is now at risk due to likely delays. Puncak remains keen to exit its water business but its fate now rests on an amicable resolution between both sides of the government. We retain our EPS forecasts but cut our target price as we raise our SOP discount from 20% to 40%. Due to near-term uncertainties, we downgrade from Add to Hold.
What Happened
Press reports for the past two days highlighting statements from the Selangor MB Azmin Ali regarding the status of water restructuring in the state have been overall negative. This is in contrast with the milestones made last year. According to the Selangor MB, the sale and purchase agreement (SPA) that Puncak and Air Selangor entered into in Nov 14 is now void after the state government declined to grant a third extension to the master water agreement, which lapsed yesterday.
What We Think
Given the lack of details on the issue of asset transfer between the two governments, the near-term outlook for Puncak has turned less attractive. New information regarding the pr ogress of Puncak's sale and purchase agreement (SPA) suggests potential delays in securing the RM1.6bn cash offer from the state. Puncak remains keen to sell its water assets and may announce an extension to the deal but the outlook from here on hinges on the state and federal governments’ move. If this is resolved within the next 2-3 months, Puncak's water deal and the bumper RM1/share (37% yield) special dividend could still be realised within this year (towards end-2015). We anticipate a likely overhang on the share price and cut our target price as we raise our SOP discount from 20% to 40% due to the emergence of delay and political risks.
What You Should Do
We do not believe the water restructuring plan will fail completely but we expect the near-term outlook to depend on both governments revisiting the master water agreement. However, this may take some time and trigger uncertainties in the weeks or months ahead. Investors may switch to contractors for exposure to job roll-out.
Source: CIMB Daybreak - 11 March 2015
