What can one do regarding an employee who is hard working and works better than others but is not punctual, even after salary deduction and warning?

Understanding how individuals differ from each other and customizing your style to manage different individuals is what people management is all about.
There is no one specific solution to this problem.
You can choose from the following options: 1.
Assess the individual's worth to the team and the organization.
Is the individual an asset to the team? If yes, have a conversation with the individual aiming to understand the reason behind non-compliance and making a genuine attempt at identifying a pragmatic solution to the problem.
A lot of organizations emphasize on flexible working these days - something you could explore as a solution to the problem, if your organization endorses flexible working.
2.
Is the individual's skill-set readily available in the market? Can you afford to let the individual go? Is he setting a bad example for others? If the answer is yes, have a conversation with the individual to understand the reasons behind non-compliance and what you can do to help.
Share the repercussions of continued non-compliance.
Agree a timeline - observe behaviour and take requisite action upon repeat incidents. 
Hope you find this information useful!

Punctuality is about self discipline and reliability.
Its about showing that you have a sense of team spirit, that you accept your share of work evenly and equally with all other team members.
Its about showing that you are responsible and can meet time lines.
Well in your case, Give the employee a WARNING first so that he/she is aware about his doings, and if he continue to do so give him/her temporary actions as per company policy.
I do believe Arriving on time means you are taking responsibility for the job.t's not about "Giving a good impression"...it means the job can be done in time!

Administration should sit with him in closed meeting, asking about the reason.
Based on his answer the action will follow.
For example, if H.R.
felt he is not taking the matter seriously, punishment action must be taken.
If no he is doing good job and understanding and willing to commit, then it means he has a personal problem and needs help.
How? it depends on the problem, financial, family, far house, bad vehicle, etc.

despite of punishments if doesnt change, do reverse.
GIVE HIM SUCH RESPONSIBLITIES LIKE TEAM LEAD, where entire team wait for him & follow him, made him ashame if he made d mistake again.
Praise his abilites and possesions and make him bind to his new responsibilities, Give him Tight schedule so dat he cant find time to roam.
make him much more involved.
see d results, if dis doesnt work he is USELESS despite of his talent.
Bcos "Discpline stands first"

Discover the details.
Find out if the employee has a legitimate reason for missing work.
If not, then take appropriate action as per company norms/policy.

Hi Muhammad Ismail,   It's always nice to read your questions because they help us to give you ideas and solutions.
Apart from what all our colleagues have mentioned here, here is what comes to my mind as a suggestion.
  If the Employee is Hardworking and possesses all other pre-requisite skills, then maybe the Employee could be provided with Transport Facilities or referred to a Colleague who could join him/her enroute to office.
  Many Companies today provide transport to ensure that Employee are not burdened with the worry of reaching to office on time nor is the Office Productivity affected.

Terminate him and see if he asks for his job back then mention the problem and if he agrees and follows then well and good but if he doesnt abide by the rule then terminate him for real.
Punctuality is a way to show respect for your workplace.
Everyone is hardworking in this competitive world, Hardwork is for personal growth too, Punctuality is something you do for organization.
    إنهاء عليه ومعرفة ما اذا كان يسأل عن وظيفته في ذلك الوقت أذكر المشكلة وإذا وافق ويلي ثم طيبة وجيدة ولكن إذا لم تلتزم بحكم ثم إنهاء له لريال مدريد.
الالتزام بالمواعيد هو وسيلة لاظهار الاحترام لمكان عملك.
الجميع يعملون بجد في هذا العالم التنافسي، العمل الجاد هو لنمو شخصية جدا، الالتزام بالمواعيد هو شيء يمكنك القيام به لتنظيم.

First of all i need to now what do you mean by ( punctual ) ? How is he hard woking and and work than other and still now going the right truck ??? i think any one who have the above2 conditions can't be PUNCTAUL , FIRST :- according to what have you decied he / she not punctual ?? according to the tasks finished or according to his / her mind set  ?? Why you didn't think as a MAJOR reasons that he / she loaded by a lot of tasks from his / her managers , REALLY in my work experince i didn't met some one who is trying always to work hard as seeking for the informations and work better than other and didn' t reach for the accuracey , However IF THATS happened in really work but i didnt' face it till now , I am sure thats something wrong in my departement i can't manage it , Meaning that i didn't show him / her the way of how the best use for the above2 power in order to reach up for the ideal frame work to him / her , Finally i wish all managers before make any decission that MUST make a close meeting with any employee in order may be something wrong in the area and if thats not , then the managers can make up the correct call.

I suppose there should be one on one meeting between the employee and the boss and try to work this out.
if this doesn't work out then follow the company policy about the matter and move on.