Tariff hike soon for Puncak Niaga?
Puncak Niaga Holdings Bhd
(Sept 28, RM2.82)
Maintain trading buy at RM2.85 with target price of RM3.55: The Edge Financial Daily, quoting sources, says a 15% to 20% water tariff hike may be in the offing for Syarikat Bekalan Air Selangor Sdn Bhd (Syabas).
Such a rumour is not surprising given that the water tariff hike is long overdue. It was reported that the federal government has given the green light and is just waiting for the Selangor government to agree.
The 37% hike in the water tariff was scheduled for Jan 2009. Puncak received compensation from both state and federal governments totalling RM434 million last year. For 1H2010, the group received RM197 million (1H2009: RM109 million) in compensation. We do not expect much variation in the compensation for 2H2010.
In terms of overall earnings, the impact on the bottom line is very much neutral given that the compensation will offset the non-hike in tariff.
On the downside, compensation is given biannually, and this will create disruption to cash flow that would impact payments to water treatment players. Hence, the decision by rating agencies to downgrade Selangor water players ratings recently.
The outlook on the water asset consolidation is still sketchy. We maintain our view that, barring unexpected events, there could be a lengthy wait for the decision on this matter. It will boil down to political will.
Key risk factors are further delays in the implementation of the tariff ke and the decision on water asset consolidation.
We maintain our “trading buy” call for those with a bigger appetite for risk with a unchanged target price of RM3.55. Numbers aside, speculation could persist over the issue of the transfer of Puncak Niaga’s water assets, which may provide a near-term catalyst for price appreciation. We set our target price at RM3.55, a 30% discount to its NPV of RM5.10 per share. — MIDF Research, Sept 28
This article appeared in The Edge Financial Daily, September 29, 2010.
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