Puncak Niaga Holdings Bhd
(March 10, RM2.53)
Maintain hold with target price (TP) of RM2.90: We view negatively that Puncak Niaga Holdings Bhd’s sale and purchase agreement (SPA) with Air Selangor for Puncak to sell its water treatment and distribution assets is now void according to Selangor’s Menteri Besar Mohamed Azmin Ali after the state government had declined to give a third extension to the master water agreement, which lapsed on Monday.

We gather from management that Puncak has not received any extension request from Air Selangor for the latter to fulfil the conditions in the SPA dated Nov 11, 2014. 

As far as valuation is concerned, we believe the RM1.5 billion figure that Puncak was supposed to receive from the state government should remain unchanged, given that the dispute is at the master agreement level between the state and federal governments.

The conflict centred on a dispute which materialised after the federal government claimed the Semenyih and Bukit Nanas reservoirs, together with all the water pipelines in Selangor, are under Putrajaya’s management and ownership.

Given the latest development, we believe Puncak would need to sign a new SPA for the disposal of its water assets and therefore face further delay in receiving the RM1.5 billion sale proceeds, of which RM530 million had been planned for distribution as dividends. — Affin Hwang, March 10

This article first appeared in The Edge Financial Daily, on March 11, 2015.