KUALA LUMPUR: CIMB Equities Research expects Puncak Niaga's share price to rally after announcing it accepted a RM1.6bil cash takeover offer for its two water concession assets.
The research house said on Wednesday the timing of the news was a slight surprise but it was overall positive given Puncak's past rejections of the offer from the Selangor government.
“Regardless of whether there will be a valuation top-up in view of outstanding receivables, Puncak remains undervalued, as the cash offer is 22% above its market cap, and that without including its oil & gas business.
“We raise our sum-of-parts based target price (to RM4.28 from RM3.21 as our discount reverts to the 20% (from 40%) we ascribed before our stockdowngrade in March 2014. We upgrade it back from Hold to Add, with the acceptance of the offer as catalyst,” said the research house.
To recap, Puncak announced that following a special board meeting, it has agreed to accept in principle the RM1.6bil takeover offer by the state government for its two water assets.
Puncak Niaga chairman Tan Sri Rozali Ismail, who owns 41.3% of the group, has also voted in favour of the offer. The decision was made after rigorous discussions between the state and federal governments.
CIMB Research said this was the first time that the company has agreed in principle the RM1.6bil cash takeover offer for 100%-owned PNSB and 70%-owned Syabas, having rejected the same offer several times in recent months.
“It also marks the first time that Rozali has voted in favour of the offer. To us, that signals that the group is ready to negotiate its exit from the water business in Selangor further. In our view, whether there will be a valuation top-up at this juncture is irrelevant, as the current offer already compensates for Syabas's negative book value.
“It would be a bonus if the final negotiations reflect the item,” it said.
CIMB Research said this news is a positive surprise in terms of timing and confirms earlier press reports that Puncak was negotiating with both the federal and Selangor state governments.