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Saturday, 12 August 2017 | MYT 12:00 AM

Puncak Niaga in trust deficit

PUNCAK Niaga Holdings Bhd clearly falls into the category of a company that the market has significantly discounted.

The company has a large cash hoard and yet the market ascribes a much lower value to it.

Puncak Niaga has cash balances of some RM233.3mil but aside from that, it has a whopping RM794mil in marked-to-market short-term investments.

According to its annual report, these monies are put into fund placements in financial institutions.

Including the short-term investments, this translates into Puncak Niaga having a cash hoard of slightly over RM1bil.

It is also to be noted that the marked-to-market short-term investment value has dropped by almost 14% since 2015 where it was recorded then at RM922.15mil.

With the latest marked-to-market short-term investments taken into account, its cash per share level excluding a potential dilution from its warrants that will mature in July 2018, the company’s cash per share value is at some RM2.29.

However, Puncak Niaga shares trade at a mere 77 sen a piece, signifying a massive 66.4% discount over its actual cash value.

Notably, Puncak Niaga has also a negligible debt levels amounting to some RM12mil as of its latest reported first-quarter ended March 31.

Its light balance sheet notwithstanding, the company has reserves amounting to RM944.6mil.

Despite its respectable financial standing, the company’s shares have been languishing, hitting a 4½ year low yesterday.

The reason why this stock is languishing at this 77-sen-per share price is likely due to a large trust deficit that is placed by investors on the company.

Market observers say this trust deficit is due to a cumulation of events that have left investors questioning whether any of that cash in the company will actually be paid back as dividends. For one, the company is loss making and secondly, it is also facing a number of lawsuits.

“I believe investors see the possibility of a special dividend as less than likely due to what the company is facing. Otherwise, I see no other reason why the market would be ascribing such a low value to this company,” an observer says.

Puncak Niaga sufferd a net loss of almost RM259mil in its financial year ended Dec 31, 2016 (FY16).

The losses were carried into the first quarter of this year with a net loss of RM42.7mil.

All three main business segments were loss making, namely water and wastewater, construction as well as oil and gas.

Puncak Niaga also noted that its oil and gas business segment had not contributed any revenue.

But the company may have some bright spots if it is successful in its recent diversification into the palm oil sector. However, that is a sector which is unrelated to its core business and which Puncak Niaga has little experience in.

Last October, Puncak Niaga through a 60%-owned unit, proposed to acquire a company called Danum Sinar, which has a total of 46,674 ha of plantation land in Murum, Sarawak. Puncak will be forking out a total of RM267.9mil for the acquisition. It said that the company being acquired has the ability to generate a steady flow of recurring income.

This acquisition is expected to be completed by the third quarter of 2017 and contribute positively to Puncak Niaga’s earnings in the longer term, the company said.

Facing lawsuits

Other than these matters, there are also some uncertainties pertaining to the relatively high number of lawsuits Puncak Niaga had been receiving of late, some of it due to claims by Pengurusan Air Selangor Sdn Bhd (PASSB) amounting to some RM63.24mil.

PASSB has acquired the Selangor water assets from Puncak Niaga in October 2015 for RM1.55bil and this is the reason why the company is awash with so much cash at the moment.

The claims by PASSB are still ongoing. Other than the claims by PASSB, Puncak Niaga’s construction segment is also facing a claim from its former subcontractor Genbina Sdn Bhd for RM25.4mil with regards to a sewerage piping project in Kuala Lumpur.

According to an announcement in July, both parties will contest the matter in courts.

With a current market capitalisation of RM344mil on the backdrop of more than RM1bil in cash, Puncak Niaga is trading at less than half of its actual value.

By stripping out the trust deficit that it faces and looking at its financials, Puncak Niaga could be an attractive privatisation target by its single largest shareholder, Tan Sri Rozali Ismail, who owns 39% of the company.