Business

Thursday November 26, 2009

Puncak Niaga’s claims will continue to snowball if tariff issue is not resolved

By IZWAN IDRIS


PETALING JAYA: Some investors have raised concerns about Puncak Niaga Holdings Bhd’s ballooning trade receivables, which amounted to RM610mil as at Sept 30.

More than half the amount was due from the company’s biggest client – the Selangor government – over delay in implementing a scheduled 37% water tariff hike that was supposed to start from Jan 1, 2009.

Puncak Niaga said on Monday that it is claiming RM339mil from the Selangor government based on 70%-owned Syarikat Bekalan Air Selangor Sdn Bhd’s (Syabas) best estimate for the water tariff compensation under the terms of the concession agreement dated Dec 15, 2004.

It remained unclear, however, whether Puncak Niaga would be able to get the whole amount claimed, which was based on its own estimate.

Puncak Niaga will continue to submit claims every quarter for the loss in revenue arising from the delay. This means the total amount claimed would continue to snowball every quarter that passes without the tariff hike issue being resolved.

“Syabas has legal grounds for defence as we understand that the concession agreement allows for the deferment/delay in capacity payment if it was caused by a delay in tariff hike,” CIMB Research said in a recent report. Syabas is the concession holder for water distribution in Selangor, as well as in Kuala Lumpur and Putrajaya.

AmResearch said that while the claims were positive at a “profit and loss” level, it had no impact on Puncak Niaga cash flow position for now. While Syabas may have a case for its claims, it won’t be an easy one to win. Increased rates are never popular with the paying public.

RHB Research Institute in a recent report reaffirmed its view that the scheduled tariff hike may not be forthcoming, at least anytime soon given the current economic climate.

The firm had held same view about three months ago, when Puncak Niaga booked in six months worth of compensation claims that totalled RM216.3mil.

Despite this, most analysts who track the company had factored in the potential compensation – which Puncak Niaga had yet to receive – in their earnings forecast for the stock.

However, Puncak Niaga’s strong earnings prospect was never the main consideration in owning the stock. Most investors prefered to look at the company’s assets, or rather its break-up value.

AmResearch analyst Mak Hoy Kean predicted that Puncak Niaga would make a net profit of RM213mil, or 51.8 sen per share for year ended Dec 31, 2009. However, he chosed to value the stock at RM4.05 by applying a 10% discount to its net asset value. Shares in Puncak Niaga closed up 3 sen at RM3.24 yesterday. Since August, the stock’s lowest close was RM3.13 and its highest RM3.30.

CIMB Research reckoned a re-rating catalyst for the stock could come from a possible takeover offer by Pengurusan Aset Air Bhd (PAAB).

PAAB was expected to make an offer for water assets owned by Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), Konsortium Abass Sdn Bhd, Syabas and Puncak Niaga’s water treatment arm possibly in the first quarter of next year.

Clearer valuation of water assets in Selangor will be available after PAAB completes its due diligence and asset verification exercise in the state, possibly early next month.

It was reported that PAAB had offered Selangor slightly above RM9bil for all its water assets, but the state was holding out for a reported RM11bil.

Analaysts said the lack of progress on the tariff hike front had squeezed Syabas’ cash flow position and hence hindered its ability to pay for treated water purchased from treatment plant operators in the state.

Last week, plant operator Splash filed a lawsuit against Syabas to recover RM196mil in unpaid water invoices and related cost.

This followed an earlier RM63mil claim by Konsortium Abass, another plant operator.


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