By Khairul Khalid
Puncak Niaga’s transition into new businesses such as oil & gas will take a long time, says a CIMB report.
“The completion of Puncak’s water asset sale leaves the group with a longer transition period before new ventures kick off, in our view. This is mitigated by the water construction segment,” said CIMB.
Yesterday, Puncak Niaga Holdings Bhd posted a pre-tax loss of RM12.41 million for its third quarter of financial year 2015 (3Q15), compared to a pre-tax loss of RM6.91 million in the same period last year. 3Q15 revenue also fell RM46.25 million from RM193.216 million the previous year.
The poor performance in 3Q15 was attributed to lower revenue contribution from the oil and gas (O&G) segment due to the collapse of oil prices in the last 18 months.
Puncak Niaga is distributing RM534 million cash dividends from the proceeds of the RM1.5 billion sale of its water assets to Selangor. The balance of the proceeds is earmarked for its O&G expansion.
Nevertheless, the current climate of low oil prices may dampen the company’s growth in this area.
“Annualised 9M15 (first nine months of 2015) core net loss for continuing operations (excluding water ops) came in below our, as well as consensus, full-year net profit forecasts. The deviation came from weak order replenishment and higher operating costs.
Revenue depletion from the oil & gas segment looks unlikely to turn around soon due to the industry-wide slowdown in upstream-related activities. Progress billings for water construction remain slow and unlikely to mitigate the higher overheads,” said CIMB.
Last January, Puncak Niaga shareholders approved the RM1.5 billion sale of its water assets and operations to the Selangor state government.
The deal is for the disposal of Puncak Niaga Holdings Bhd’s 100% stake in Puncak Niaga (M) Sdn Bhd and 70% stake in Syabas (Syarikat Bekalan Air Selangor) to Selangor state agency Pengurusan Air Selangor Sdn Bhd.
Despite its exit in Selangor, Puncak Niaga said the group would continue to be involved in the construction of water-related and sewerage facilities.
CIMB also says that it is still too early for Puncak Niaga to embark on any mergers and acquisitions given the slowdown in upstream activities and weak oil prices.
“This strategy remains largely at an exploratory stage – mainly focusing on potential oil & gas asset acquisitions at this juncture – and could remain in this stage for a while yet due to current market conditions. 100%-owned subsidiary Puncak Oil & Gas currently owns one lay barge,” said CIMB.
CIMB is slashing its earnings per share for financial years 2015-2017 (FY 15-17) forecasts as Puncak Niaga’s key segments will predominantly comprise of oil & gas and water construction.
“From losses in FY15, we forecast turn around slightly in FY16 due to delayed replenishment from Petronas’s transport and installation contract.
The higher operating cost will be offset by interest income and RM200 million – RM400 million of new construction order book. Its current outstanding order book of RM350 million is good for two years. Tender visibility remains limited to mid-sized jobs,” said CIMB.
CIMB has downgraded its recommendation of Puncak Niaga to “hold” from “add” previously, with a lower target price of RM2.98.
At 11.45 am today, Puncak Niaga was trading at RM2.83, down 2 sen.
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