AmWatch - Puncak Niaga : Further delay in completion of water deal Hold, 12 March 2015

STOCK FOCUS OF THE DAY

Puncak Niaga : Further delay in completion of water deal            Hold

We maintain HOLD on Puncak Niaga Holdings Bhd with a lower SOP-derived fair value of RM2.86/share (vs. RM3.40/share previously), after tweaking our numbers and to reflect a higher discount of 20% (from 10% earlier).

The higher discount to our SOP value is to reflect the continued delay in the sale of its water concessionaire businesses. The Selangor water restructuring exercise appears to be further protracted following a dispute between the Federal and state governments. The dispute centres on the transfer of ownership of land involving 26,000km of pipes in the state. Also in contention is the ownership of the Semenyih and Bukit Nanas dams. 

Selangor Mentri Besar Azmin Ali claims that the transfer of land (where the pipes are located) is not part of the master agreement signed last Sept. As the terms of the master agreement was not honoured, he said that the water deal had lapsed. On the other hand, Energy, Green Technology and Water Minister Datuk Seri Maximus Ongkili claimed that the assets stated in the agreement had included both the pipes and land. He noted that the state government had refused to resolve three of the eight conditions in the master agreement.

In any case, Ongkili said the Federal government is willing to lease the land for 45 years from the state. Azmin had also stated Selangor’s willingness to discuss such a possibility. Puncak said that its board of directors will hold a meeting soon to deliberate on the impact of any further delay. We view the latest development negatively as we had earlier anticipated the water deal to be completed soon. Nevertheless, we are comforted that both parties remain open to discussions amid talks of it possibly going to court.

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