PUNCAK NIAGA HOLD. Water deal completion imminent. Company report. (Maintained) UTILITIES. Max Koh

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1 PUNCAK NIAGA UTILITIES (PNH MK EQUITY, PNHB.KL) 06 Feb 2015 Company report Max Koh Water deal completion imminent Rationale for report: Company update HOLD (Maintained) Price Fair Value 52-week High/Low Key Changes Fair value EPS RM2.63 RM3.40 RM3.76/RM2.29 YE to Dec FY13 FY14F FY15F FY16F Revenue (RM mil) 1, , , ,566.3 Core net profit (RM mil) FD Core EPS (sen) FD Core EPS growth (%) (33.6) Consensus Net Profit (RM mil) DPS (sen) PE (x) EV/EBITDA (x) Div yield (%) ROE (%) Net Gearing (%) Stock and Financial Data Shares Outstanding (million) Market Cap (RMmil) 1,093.3 Book Value (RM/share) 4.32 P/BV (x) 0.6 ROE (%) 17.6 Net Gearing (%) 85.3 Major Shareholders Tan Sri Rozali Ismail (40.7%) Free Float 44.2 Avg Daily Value (RMmil) 4.1 Price performance 3mth 6mth 12mth Absolute (%) (21.0) (22.6) (10.8) Relative (%) (19.4) (19.5) (11.7) Investment Highlights We maintain HOLD on Puncak Niaga Holdings Bhd with an unchanged SOP-based fair value of RM3.40/share. The Edge Malaysia recently reported that a tussle is brewing between the Federal and Selangor governments over ownership of certain water assets in the state. It was reported that the dispute could derail the consolidation exercise. However, we are unperturbed by this as we believe the deal needs to be wrapped up soon to ensure sustainable water supply (Read our water sector report released today for our rationale). Recall that Pengurusan Air Selangor Bhd had earlier requested for an extension until 9 Feb to fulfil certain condition precedents in the sales and purchase agreement with Puncak. In a meeting last week, management noted that it is hopeful of concluding the water deal by Chinese New Year with the dividend payout (of RM1/share) expected by May. While there could be a minor delay, we are hopeful that the deal could be wrapped up by 1H. Notwithstanding that, we remain cautious of Puncak s future plans beyond the dividend windfall. Post-disposal, Puncak s core activities would comprise its water construction and oil & gas businesses. Recall that the group had secured RM544mil of jobs for its construction division last year. We estimate the group s current outstanding order book at ~RM400mil and net margins at 5% that would sustain the group earnings for the next few years. With a tender book of RM400mil, the group is hopeful of securing more private and public jobs. Potential jobs include effluent pipes for RAPID, as well as replacement of water pipes in Selangor and Kuala Lumpur. Puncak may achieve a positive operating profit for FY14F for its oil & gas division due to higher billings from its Pan Malaysia job. Note that the division has been profitable since 2Q14. As for its future plans, management noted that it will be selective for its next venture (with RM1bil in cash proceeds from the disposals) in order to extract the most value. It is considering a mix of equity and debt funding for acquisitions and favours brownfield plantation land in Malaysia while it explores opportunities in the O&G sector. PP 12247/06/2013 (032380) We maintain HOLD on Puncak until we see concrete details for its future plans following the completion of the water sale.

2 EXHIBIT 1: DERIVATION OF FAIR VALUE Units Value Stake (RM mil) (RM/share) (% of SOP) (%) PNSB (equity ) 1, Based on offer SYABAS (equity ) Based on offer Oil & gas x 3-y ear av erage net profit Others v arious 5x 3-y ear av erage net profit Est. non-w ater debt/co lev el net debt (53.6) (0.10) (2.7) As at 31 December 2013 Proceeds from conv ersion of w arrants/conv ertible sukuk Sum-Of-Parts 2, FD no of shares Break-up value/share (RM) 3.78 FV (10% discount) 3.40 Source: Company, AmResearch AmResearch Sdn Bhd 2

3 EXHIBIT 2: FINANCIAL DATA Income Statement (RMmil, YE 31 Dec) FY12 FY13 FY14F FY15F FY16F Revenue 3, , , , ,566.3 EBITDA 1, Depreciation/Amortisation (234.1) (24.7) (26.6) (28.7) (30.7) Operating income (EBIT) Other income & associates (0.1) (14.1) (0.3) (0.3) (0.3) Net interest (599.9) (91.9) (76.1) (74.2) (79.8) Exceptional items Pretax profit Taxation (65.6) (36.6) (59.8) (76.6) (58.8) Minorities/pref dividends (2.0) (2.8) (2.7) Net profit Core net profit Balance Sheet (RMmil, YE 31 Dec) FY12 FY13 FY14F FY15F FY16F Fixed assets Intangible assets 7, Other long-term assets 3, , , , ,600.2 Total non-current assets 11, , , , ,299.2 Cash & equivalent 1, Stock Trade debtors Other current assets Total current assets 2, , , , ,405.4 Trade creditors 1, Short-term borrowings 1, Other current liabilities Total current liabilities 2, Long-term borrowings 4, , , , Other long-term liabilities 5, Total long-term liabilities 10, , , , ,303.4 Shareholders funds , , , ,584.3 Minority interests (582.0) (2.2) (0.2) BV/share (RM) Cash Flow (RMmil, YE 31 Dec) FY12 FY13 FY14F FY15F FY16F Pretax profit Depreciation/Amortisation Net change in working capital (1,455.0) (28.7) (70.0) (10.7) Others (488.7) 1,300.8 (87.5) (101.7) (101.9) Cash flow from operations Capital expenditure (235.5) (16.4) (20.0) (20.0) (20.0) Net investments & sale of fixed assets Others (47.2) (16.6) (127.6) Cash flow from investing (282.8) (32.9) (147.6) (20.0) (15.4) Debt raised/(repaid) (40.0) (49.9) (184.2) (701.9) Equity raised/(repaid) Dividends paid - (20.6) Others 32.5 (53.2) Cash flow from financing (113.7) 50.1 (184.2) (701.6) Net cash flow 65.8 (39.7) (430.7) Net cash/(debt) b/f 1, Net cash/(debt) c/f 1, Key Ratios (YE 31 Dec) FY12 FY13 FY14F FY15F FY16F Revenue growth (%) 44.5 (69.4) EBITDA growth (%) 86.6 (67.6) Pretax margin (%) Net profit margin (%) Interest cover (x) Effective tax rate (%) Dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days) Source: Company, AmResearch estimates AmResearch Sdn Bhd 3

4 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Puncak Niaga 06 Feb 2015 EXHIBIT 3: PB BAND CHART EXHIBIT 4: PE BAND CHART δ δ 1.50 Avg δ Avg -1δ AmResearch Sdn Bhd 4

5 Published by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 1 5 t h F l o o r B a n g u n a n A m B a n k G r o u p 55 Jalan Raja Chulan Kuala Lumpur Tel: ( 0 3 ) ( r e s e a r c h ) F a x : ( 0 3 ) Printed by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 1 5 t h F l o o r B a n g u n a n A m B a n k G r o u p 55 Jalan Raja Chulan Kuala Lumpur Tel: ( 0 3 ) ( r e s e a r c h ) F a x : ( 0 3 ) The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. For AmResearch Sdn Bhd Benny Chew Managing Director AmResearch Sdn Bhd 5