Sabtu, 23 November 2013

The Star Online: Business

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The Star Online: Business

Spotlight on water stocks


Puncak Niaga Holdings Bhd's shares closed 14 sen higher to RM3.48 yesterday, its highest in more than four years. Year-to-date, the counter has risen by a whopping 193%.

Kumpulan Perangsang Selangor Bhd (KPS) added six sen to RM2.26, while Gamuda Bhd, which has a 40% stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), gained eight sen to RM4.89.

The Selangor state government made a fresh offer of about RM9.7bil, similar to the previous takeover offer, to acquire four state water concessionaires – Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Konsortium Abbas Sdn Bhd, Puncak Niaga and Splash.

AmResearch said the new offer was "not surprising", as the state government had indicated that the terms and pricing would be similar to the previous one.

"We view the move as positive, as the stakeholders take another step closer towards resolving the water impasse," it said, adding that the water assets would eventually be acquired by Pengurusan Aset Air Bhd (PAAB), while the state government through a special-purpose vehicle licence would lease the assets from PAAB.

"KPS is most likely to agree to the offer, while there have been reports that Puncak Niaga might seek for a higher return on equity (ROE) of 15%. There is also talk that Puncak Niaga might seek an arbitration process for the remaining amount it is seeking," AmResearch said.

Affin Investment Bank Bhd said it would appear that the Selangor state government was falling back to its fourth offer, as this fresh fifth offer continued to price Puncak Niaga's water assets at 12% ROE.

"As such, the total offer for the equity and water assets of the group's 100%-owned Puncak Niaga water treatment plants and 70%-interest in water distributor Syabas amounts to RM5.6bil," it said.

Affin expects Puncak Niaga to "continue to hold out for a higher asset valuation and may potentially turn down this fifth offer", prolonging the attempted consolidation exercise. "Nevertheless, we opine that downside risk from the current share price level is limited, as it is not an overcrowded trade."

On the surface, CIMB Research said the news was a "negative surprise", as it had expected the relaunch of the takeover bid by the state government to be on revised terms. It said the media had recently reported that Puncak Niaga was negotiating for a higher ROE of 15% (versus the state's offer of 12%) for the equity portion. "However, what appears positive at this point is that the new bid also clarified that the takeover of the water assets would also be satisfied via the assumption of the liabilities of Puncak Niaga (RM1.8bil) and Syabas (RM4bil) by PAAB.

"This leaves Puncak Niaga with an implied cash takeover bid of RM1.6bil for both Puncak Niaga and Syabas (70%-owned), net of debt. Based on this methodology, the implied value/share for Puncak Niaga's water assets (excluding the oil and gas business) is RM3.80 (based on the current number of shares) and RM3.01 on a fully diluted basis," it said.

Bernama quoted the Selangor Mentri Besar's office as saying that the offer was the result of a series of discussions between the state government and the Energy, Green Technology and Water Ministry.

It said the offer letters were sent through Selangor state investment arm Kumpulan Darul Ehsan Bhd (KDEB) and required a response within 14 days, which is by 5pm the latest on Dec 4.

"The offer also states that KDEB would settle all arrears incurred by the four companies, including the relevant commercial bonds, loans and government loans," Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim said.

Puncak Niaga, which owns five water-treatment concessions and a 70% stake in Syabas, said it had received two letters from KDEB offering to acquire the company's water assets for RM5.58bil. The offer valued the group's treatment plants at RM2.47bil and another RM3.12bil for its stake in Syabas.

KPS said it had also received an offer from KDEB to acquire Titisan Modal Sdn Bhd for RM990.2mil. Titisan Modal owns 55% of Kumpulan Abass – the concessionaire for the Sungai Semenyih water supply scheme.

KPS also said that KDEB had offered to pay RM1.83bil for its 30% stake in Splash.

Gamuda, which has a stake in Splash, is also deliberating on the RM1.83bil takeover offer from KDEB. It said that an appropriate announcement would be made to Bursa Malaysia Securities in due course on the outcome of the deliberation.

Can we afford to scrap off 12-year-old cars?


IT was last weekend when what I dread happened to me. In my usual commute to Singapore, my car broke down. It was just 2km away from the Ayer Keroh exit along the North South Expressway where my vehicle came to a halt.

The symptoms prior to my 8-year old car failing on me suggests it was the fault of the alternator. It was confirmed later after the car was repaired. The alternator died on me when the car was less than a year old. And that got me thinking about what has been in the papers recently with calls for the scrapping of cars older than 12 years of age.

I know the plan has been scrapped but it's not the first time that proposal has been floated. There is a chance lobbyists will try again.

The premise behind that thinking is that cars older than 12 years of age are unsafe. It was reported that the Malaysian Institute of Road Safety Research (Miros) found vehicles more than that age are not roadworthy and could pose risks to drivers.

There is some truth to that. Modern cars with their crumple zones and impact beams protect the interior and the occupants better than older cars. It's down to advance in technology.

As cars get older, they encounter more wear and tear. Statistically, what Miros says is true but the fact is that can be mitigated if regular maintenance and servicing is conducted on vehicles and parts that are important to safety like braking systems and tyres are kept tip top at all times.

The fact that vehicle manufacturers produce spare parts suggests that it is the intention of car manufacturers to have owners of vehicles replace worn out parts when it's time to do so.

In short, as long as the car is well maintained, it should last and be road worthy for a very long time.

The crux of the backlash against the scrapping proposal was obvious. Vehicle owners found that forcing cars to be scrapped is an undue burden. In fact, end-of-life policies for vehicles are generally seen in more developed and well-off countries. With public transport infrastructure still poor and not adequate in most parts of the country, there really isn't a better alternative than owning a car for a lot of Malaysians.

With the cost of a car in Malaysia already high because of taxes, more so if the car is not made in Malaysia, people feel that it's too costly to keep replacing cars every 12 years or so. Surely there would be exemptions to such a rule as the face of that proposal suggests that classic or antique car owners will have to send their prized vehicles to the scrap yard.

One study has shown that the cost of vehicle ownership in Malaysia over say a 7- or 10-year period was actually lower than what most people think.

It was found that the cost of running a car in Malaysia is low after the initial high price of the vehicle as the price of fuel, insurance and cost of maintenance is actually quite low.

But with the price of fuel at the pump set to rise in the future, and with liberalisation of the general insurance industry in the coming years, that means the cost of insuring your vehicle should go up. I doubt liberalisation will mean lower costs of insurance as the industry has been lamenting about how unprofitable motor insurance is. It was reported that motor insurance cost went up from January this year.

Then there is the cost of maintaining your car. With minimum wage now implemented, and with salaries set to go up, surely the labour cost of repairing and maintaing a car will rise too. If the industry is to see the migration of "bawah pokok" workshops to a more structured workshop culture, then that will also mean higher costs.

What can be done to ensure that cars on the road are safe, regulations on mandatory road worthy tests can be drawn up and enforced.

I don't think people will argue against needing to make sure their vehicle is roadworthy. It's for the benefit of all road users that vehicles are sufficiently safe. Just don't force people to scrap their cars under the current circumstances.

Business editor (features) JAGDEV SINGH SIDHU paid RM400 to tow his car back to KL and thinks road safety is also down to the ability and discipline of the driver.


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