PUNCAK (6807) : Puncak Niaga Holdings - Cashing out of the waters
Target RM4.28 (Target: ADD)
Puncak's annualised 9M14 core net profit was broadly in-line at 94% of our full-year forecast, and 4% above consensus. Narrower operating losses expected for oil & gas and progress billings for construction should support a better 4Q. Puncak's appeal remains the completion of the SPA for its water assets in 1Q15, which should pave the way for the board-approved RM1/share special dividend, resulting in a whopping 30% dividend yield. Our EPS forecasts and SOP target price are intact (still pegged to a 20% discount). Maintain Add. Completion of the water asset sale and the bumper cash payout are catalysts. Puncak remains our top sector pick.
9M14 broadly in line
Annualised 9M14 core net profit made up 94% of our full-year number and was 4% above consensus. The performance was broadly in-line as we expect 4Q to be stronger, considering the narrowing of the losses for oil & gas (RM3.6m operating losses in 9M14 vs RM10.6m losses in 9M13, and the RM7.5m EBIT just in 3Q14) and stronger billings from water infra jobs, backed by RM544m in the outstanding order book. There were no surprises in the overall operating numbers. No dividends were declared, which was also expected.
Exiting the water business in Selangor
The recently-signed sale and purchase agreement (SPA) with Air Selangor marks the start of the process of Puncak exiting the water business in Selangor. Shareholders are the main beneficiaries of the RM1.6bn incoming cash proceeds as 34% of the amount is earmarked to be distributed as a special dividend. It is also positive for Puncak Niaga as it would allow the group to pursue the expansion of its oil & gas business via M&As, domestically and overseas, and beyond the existing transport and installation (T&I) contract from Petronas. The asset sale allows the group to exit the Selangor water concession business and be more focused on oil & gas and water infra construction. For oil & gas, the group targets to secure more engineering and procurement-type contracts.
Generous 30% dividend yield post asset sale
The board-approved special dividend of RM1/share post water assets sale remains intact and translates to an attractive dividend yield of 30%. This should be realised in FY15 as the deal should be wrapped up in 1Q15.
Source: CIMB Daybreak - 28 November 2014