Puncak Niaga - RM2.67 Net Cash Per Share Provides Huge Margin of Safety For RM1.08 Share Price

Author: Icon8888   |   Publish date: Mon, 18 Jul 2016, 03:41 PM

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1. Huge Cash Pile Post Assets Disposal

Since I started blogging in 2014, I believe this will be the first time I make a Buy call based on Balance Sheets.

Puncak was previously the water concessionaire for the State of Selangor. It sold its water assets to the government in 2015 and received RM1.56 billion cash.

During the same year, it undertook a distribution of RM1.00 cash per share back to shareholders. Upon completion of the corporate exercise, it was left with cash of RM1.26 billion (comprises RM335 mil cash and RM927 mil short term investment).

Puncak has borrowings of RM57 mil. As such, net cash is about RM1.2 billion.

Based on 450 mil shares, that is equivalent to RM2.67 cash per share.

2. Historical Share Price

Since the completion of distribution of RM1.00 cash per share by end 2015, the stock has been trading at around RM1.00.

3. Proposed Acquisition of TRIplc

On 18 April 2016, Puncak announced that it has entered into Heads of Agreement to explore the possibility of acquiring the assets of TRIplc. This is a related party transaction as Tan Sri Rozali is the major shareholder of both Puncak and TRIplc.

Based on 66 mil shares and latest price of RM2.25, TRIplc's market cap is approximately RM150 mil.

TRIplc is the owner of government concession to provide facilities and infrastructure management for UiTM campuses. The concessions will last for more than 20 years. In the latest financial year, TRIplc reported net profit of RM7 mil.

4. Concluding Remarks

In my opinion, Puncak is undervalued at current price. The major risk investing in this stock is possible injection of assets by major shareholder at inflated value. However, at 60% discount to cash per share of RM2.67 and 70% discount to net asset per share of RM3.67, I believe the margin of safety is big enough to warrant a BUY.

Have a nice day.