Water Related Company

05-11-2007: Puncak Niaga’s higher target price

CIMB Research has maintained its Outperform rating on Puncak Niaga Holdings Bhd at a higher target price of RM6.90 versus RM5.06 previously as it moves its valuations forward and lowers its discounted cash flow (DCF) discount rate.

The research house said in the medium term, factors that could boost the stock’s rating were its participation in the RM5 billion Langat 2 water treatment plant (WTP) project and success in regional ventures.

A third factor could be the potential privatisation of Puncak, backed by the Selangor state government, following the consolidation of the water industry.
CIMB Research moved its valuation horizon from end-07 to end-08, lowered its DCF discount rate for its WTP operations from 13% to 10.4% while keeping a 10% discount to its revised group DCF value of RM7.69 (RM5.63 previously).
Puncak Niaga has a chance to secure a “fair share” of the RM5 billion Langat 2 WTP project. This could lead to subcontracting works and operations and maintenance jobs, it said.

It appeared that KDEB had already taken control of Konsortium Abbas, one of three water treatment concessionaires in Selangor. It said there was a possibility Syabas (70% owned by Puncak Niaga) could be the next target.

“According to Puncak, its entire water treatment and water distribution rights, that is Syabas, could be valued at RM4 billion to RM5 billion. We gather from industry players that the Selangor state will need to fork out as much as RM6 billion to buy out all the existing water assets,” it said.

“Indications are 45%-55% of the RM4 billion-RM5 billion is the value of Puncak’s 29 water treatment plants. This implies that Syabas is worth at most RM2.2 billion, which implies a selling price of RM1.5 billion for Puncak’s 70% stake. At RM4 billion to RM5 billion level, this works to a range of RM9.70 to RM12.15/share,” it said.




http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_dfc0c960-cb73c03a-c59ad500-c7ae1bd3

Langat 2

All the four parties which have cleared the final stages of the initial tenders consist of Japanese or Japanese-led consortiums. It is understand that the pre-qualification tenders were closed in September, and results of the final tenders could be out as early as end-December.

This latest development validates our earlier view that chances of local participation for the Pahang portion is less likely on two counts:
(i) the project will be Japanese-funded; and
(ii) bulk of work consists of the RM3bn tunnelling package where local expertise is still lacking.

However, it is believed that supply of pipes estimated at RM200m maybe given to a local party. This is due to the Malaysian government's preference for local contractors and import duties of 30%-50% imposed on imported foreign pipes.

In this regard, JAKS is the best candidate for the piping works due to its:
(i) capabilities as an integrated water engineering outfit (both supply and lay works); close proximity of its Bentong plant to the project source; and
(iii) status as the sole local pipe manufacturer capable of producing large water diameter pipes of up to 3m required for the project.

More importantly, construction of both the Pahang and Selangor portion of
the project has to start concurrently by 2008, and completed by 2013. Hence, the award for the Langat 2 Water Treatment Plant Scheme ("Langat 2") has to start soon.