Further dividend windfall for Puncak shareholders likely

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Puncak Niaga Holdings Bhd
(Jan 7, RM2.80)
Maintain “buy” with a target price (TP) of RM4.01:
Puncak Niaga Holdings’ (Puncak) extraordinary general meeting (EGM) to decide on the proposed disposal of its water assets and operations was to have been held yesterday. Maintain “buy” with our sum-of-parts (SoP)-based TP unchanged at RM4.01 (36.9% upside).

We continue to advise existing shareholders to vote for the proposal and walk away with total net proceeds of RM1.56 billion. The management remains committed to announcing a special dividend per share (DPS) of at least RM1. To recap, Puncak agreed in November 2014 to sell its 100% stake in Puncak Niaga Sdn Bhd and a 70% stake in Syarikat Bekalan Air Selangor Sdn Bhd to Kumpulan Darul Ehsan Bhd for a total cash consideration of RM1.56 billion.

A minimum 75% approval is required from shareholders for the disposal exercise to proceed. We note that Puncak’s single largest shareholder Tan Sri Rozali Ismail, with an effective stake of 40.9%, has given his undertaking to support the proposed disposal.

We continue to advise investors to vote for the proposed disposal to put an end to the much-delayed saga after six years of protracted negotiations.

According to the circular, the entire exercise will be completed by mid-January. Upon completion, the management remains committed to announcing a special DPS of at least RM1.

This could potentially translate into a total cash payout of RM411.7 million based on its outstanding share base (excluding treasury shares).

Upon completion of the disposal, Puncak will be a pure oil and gas (O&G) player via its 100%-owned subsidiary in Puncak Oil & Gas Sdn Bhd. All in, we maintain our “buy” call with our fully-diluted SoP-based TP unchanged at RM4.01.

The share price has recovered by 25% over the past three weeks after having retraced from a high of RM3.71 in tandem with weakness in the local equity market in the last two months. That said, we see potential for further upside as we do not discount the possibility of a further dividend windfall to better reward shareholders amid the current market volatility. — RHB Research Institute, Jan 7.

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This article first appeared in The Edge Financial Daily, on January 8, 2015.