Puncak Niaga Holdings Bhd (Feb 10, RM1.66)
Maintain neutral with fair value RM1.82: Bursa Malaysia has issued an unusual market activity (UMA) query to Puncak Niaga Holdings due to the recent sharp rise in its share price and high trading volume.
After consulting its board of directors, the management said it is not aware of any corporate development relating to the group’s business, rumour or report concerning the business or affairs of the group or any other explanation that could account for the unusual market activity.
We are pleased with the upward re-rating of Puncak’s share price to near our theoretical fair value, as we had earlier recommended a tactical “trading buy” on the counter when its share price dropped near its historical lows after the group emerged as an integrated water player.
However, we are surprised with the sudden surge in the company’s share price, together with high transacted volume that we suspect may emanate from pure market speculation.
We did get wind of market rumours that the company may be taken private. The offeror was not identified.
However, we see a low possibility of this happening, especially at this juncture. Puncak has received a few offers to take over its water assets at various amounts but these came short of the board’s expectations, especially considering the amount offered would be able to avert a possible default or cross-default on bonds issued by the concessionaire.
As the asset purchase could be a politically sensitive issue, especially with a general election just around the corner, we do not expect this deadlock to be resolved in the medium term.
The deadlocked restructuring of water assets obviously presents a major roadblock to any buyer in taking a substantial stake in the company in view of the huge investment risk. Apart from that, we also think a privatised entity may lose significant bargaining power during the asset purchase negotiation process.
Although we applaud the management’s efforts to diversify into other related businesses to obtain new income streams, such plans still do not justify the recent run-up in its share price.
Puncak is still bidding for various water projects, having recently secured a contract worth RM667.32 million from the Rural and Regional Development Ministry via a 40:60 joint venture with Quality Concrete Holdings Bhd.
Based on its 40% stake in the project, plus gross margin in the mid-teens, we see small earnings contribution arising from this project. As for its recent foray into the oil and gas sector, we expect Puncak to go through a steep learning curve, being the new kid on the block despite the fact that it has already secured some RM400 million in contract value for 2012. — OSK Research, Feb 10
This article appeared in The Edge Financial Daily, February 13, 2012.
Maintain neutral with fair value RM1.82: Bursa Malaysia has issued an unusual market activity (UMA) query to Puncak Niaga Holdings due to the recent sharp rise in its share price and high trading volume.
After consulting its board of directors, the management said it is not aware of any corporate development relating to the group’s business, rumour or report concerning the business or affairs of the group or any other explanation that could account for the unusual market activity.
We are pleased with the upward re-rating of Puncak’s share price to near our theoretical fair value, as we had earlier recommended a tactical “trading buy” on the counter when its share price dropped near its historical lows after the group emerged as an integrated water player.
However, we are surprised with the sudden surge in the company’s share price, together with high transacted volume that we suspect may emanate from pure market speculation.
We did get wind of market rumours that the company may be taken private. The offeror was not identified.
However, we see a low possibility of this happening, especially at this juncture. Puncak has received a few offers to take over its water assets at various amounts but these came short of the board’s expectations, especially considering the amount offered would be able to avert a possible default or cross-default on bonds issued by the concessionaire.
As the asset purchase could be a politically sensitive issue, especially with a general election just around the corner, we do not expect this deadlock to be resolved in the medium term.
The deadlocked restructuring of water assets obviously presents a major roadblock to any buyer in taking a substantial stake in the company in view of the huge investment risk. Apart from that, we also think a privatised entity may lose significant bargaining power during the asset purchase negotiation process.
Although we applaud the management’s efforts to diversify into other related businesses to obtain new income streams, such plans still do not justify the recent run-up in its share price.
Puncak is still bidding for various water projects, having recently secured a contract worth RM667.32 million from the Rural and Regional Development Ministry via a 40:60 joint venture with Quality Concrete Holdings Bhd.
Based on its 40% stake in the project, plus gross margin in the mid-teens, we see small earnings contribution arising from this project. As for its recent foray into the oil and gas sector, we expect Puncak to go through a steep learning curve, being the new kid on the block despite the fact that it has already secured some RM400 million in contract value for 2012. — OSK Research, Feb 10
This article appeared in The Edge Financial Daily, February 13, 2012.
