Our target price remains pegged to an unchanged 30% discount to SOP. There are rising expectations that the water restructuring talks in Selangor will heat up from Sep-13, and that both the federal and state governments will push through the Langat 2 plant as one of the priority public sector-driven projects. Catalysts related to the water assets takeover should rise in 2H. We maintain our Trading Buy rating. 

Puncak's share price continued to rise this week on expectations that the water takeover talks in Selangor will pick up from Sep-13, in line with the state government's targeted timeline. We gather that there has been less engagement at the concessionaires/targeted water assets level, but both the federal and state governments are renewing negotiations in order to 1) conclude the water consolidation exercise in the state via acquisitions of the water assets, and 2) pushing through the rollout of the RM3bn Langat 2 water treatment plant (WTP) to remedy the expected water shortage in Selangor. The recent industrial oil spill in Sg. Selangor presents a new trigger point. We believe that Langat 2 will be listed as one of the priority public sector-driven projects and will be pushed through in 2H. This, in turn, is positive for the water takeover talks as both events are interrelated. 

Our optimistic assessment of the prospects of the takeover of water assets in Selangor remains unchanged. Intervention from the federal government since a couple of months back should present a valuation upside for Puncak's two targeted water assets. Puncak should be able to renegotiate the terms, which should at least price its water assets at 1x BV - higher than the current share price. 

The stock is still attractive and worth a trade. We expect the water takeover news flow to pick up in 2H13. Theoretically, the exit price acceptable to Puncak's minority shareholders will be RM3.67 (PNSB's BV). This rises to RM4.74 if we include the equity value of Syabas, based on the state's valuation.

Source: CIMB Daybreak - 06 September 2013, Full PDF Report