This article first appeared in The Edge Malaysia Weekly, on March 21 - 27, 2016.

PUNCAK Niaga Holdings Bhd has come under the spotlight. Last Wednesday, it saw 14 million of its shares traded, compared with the typical one million daily. It also experienced a rally over five days, which turned the tide for the counter, pushing it 28% higher to RM1.31 on March 16 from a low of RM1.02 on March 10.

It seems that the company, which does not have a profitable core business, has attracted the attention of several investment funds that are keen to know its plans in regard to cash and short-term investments amounting to RM1.3 billion in its books.

“It (Puncak Niaga) has a lot of cash, and I have been hearing that funds are looking at the company to find out what it plans to do with the money. I won’t mind betting on it,” says a remisier with a local securities firm.

According to Puncak Niaga’s financial reports for the year ended Dec 31, 2015 (FY2015), the group had short-term investments of RM922.15 million, up from RM10.3 million the year before. Its cash stood at a respectable RM378.55 million, 15.2% lower than the previous year. Total borrowings stood at RM71 million.

Puncak Niaga’s short-term assets have risen sharply because of the proceeds from the sale of its water concession business to Pengurusan Air Selangor Sdn Bhd in October last year. Puncak Niaga received RM1.55 billion from the disposal, with RM447.17 million paid out as a special dividend.

Before the sale, the company had ventured into the oil and gas business. However, the results have not reached a level that can return it to its heyday and put it on a firm financial footing. The counter closed at RM1.27 last Thursday, 45.8% lower than its five-year high of RM2.34 on June 20, 2014.

The O&G industry is still in the doldrums and Puncak Niaga’s construction business has not been able to replenish its order book quick enough and with large enough contracts to be a main revenue and earnings generator. The Selangor water concession is too large an income generator to be replaced.

In FY2015, Puncak Niaga reported that revenue and net profit from its discontinued operations was estimated at RM475.2 million and RM198.3 million respectively. The company’s continuing operations reported revenue of RM188.7 million and a net profit of RM65.6 million in the same period.

The disposal of the water assets came after eight years of intense negotiations between Puncak Niaga and the Selangor government under Pakatan Rakyat. The Selangor government had promised to keep water tariffs low after winning the state in the 2008 general election.

Prior to the disposal, Puncak Niaga wholly owned Puncak Niaga Sdn Bhd, which undertakes water and wastewater treatments in the most populous state in Malaysia. It also owned a 70% stake in Syarikat Bekalan Air Selangor Sdn Bhd, a water distribution business.

Puncak Niaga ventured into the O&G services industry in 2011 after its subsidiary, Puncak Oil & Gas Sdn Bhd, acquired GOM Resources Sdn Bhd and KGL Ltd for US$59 million. GOM Resources offers transport and installation services, vessel management and onshore construction in the O&G industry.

However, Puncak Niaga’s O&G venture has now come under pressure due to the slump in crude oil prices. In FY2015, the division posted a loss of RM126.7 million, compared with a profit of RM24.3 million in the previous year.

The company’s largest shareholder, Tan Sri Rozali Ismail, has stated that it may venture into the plantation sector following the disposal of its water business. However, the company has yet to make any meaningful ventures into the sector.

It is noteworthy that Rozali is involved in the plantation business through his private vehicle, Corporate Line (M) Sdn Bhd. According to the company’s filings with the Companies Commission of Malaysia, its principal activities include the harvesting and trading of oil palm and tropical fruits.

The filings show that Corporate Line’s sale of oil palm fruits was its major revenue earner, contributing 94% to the total of RM2.32 million in 2014. However, the company is more of an investment holding firm, through which Rozali holds some of his shares in Puncak Niaga.

Should Puncak Niaga pay another round of special dividend to its shareholders? The company’s net cash works out to RM1.23 billion or RM2.58 per share, based on its share base of 477.2 million, not including translation of warrants.

Based on the counter’s closing price of RM1.27 per share last Thursday, a RM2 special dividend would translate into a dividend yield of 157.5%.

Puncak Niaga could also take a leaf out of Johor Corporation’s (JCorp) book. The Johor state-owned investment company proposed to take Kulim (M) Bhd private last year by offering a selective capital reduction and repayment exercise at RM4.10 per share.

The price was 24% higher than Kulim’s closing price prior to the announcement. In total, the acquisition may cost JCorp RM2.2 billion.

By privatising Kulim via the capital reduction and repayment exercise, JCorp not only gets to own 100% of Kulim’s vast landbank of 46,000ha but also control the company’s cash hoard of RM1.74 billion. At the same time, Kulim’s minority shareholders could walk away with a good amount of money.

Kulim closed at RM3.92 last Thursday for a market capitalisation of RM4.99 billion.

However, Puncak Niaga is not Kulim — when the latter sold its shares in QSR Brands Bhd and New Britain Palm Oil Ltd, it was still left with a large landbank and a substantial amount of cash. Puncak Niaga’s jewel in the crown has always been its water concession business, something that it has parted with.

Rozali and the rest of the top management of Puncak Niaga now have a happy “problem” of having too much money to invest. Their decision will determine the future of Puncak Niaga — whether it will emerge better and stronger or fade away from the corporate spotlight. 

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