• Protasco Bhd’s 1QFY20 net loss stood at RM2.5m vs. a net profit of RM1.2m recorded in the previous corresponding quarter, dragged down by the lower contribution across all six major segments, particularly the engineering services segment turning into red in pre-tax level. Revenue for the quarter decreased 18.7% YoY to RM135.2m.

• The reported earnings fell short of expectations against our initial net profit forecast of RM12.0m for FY20, largely due to lower contribution from the construction segment and higher effective tax rate at 71.7% vs. our forecast of 35.0%. Meanwhile, the reported revenue came below our expectations, amounted to 18.4% of our full year estimate of RM733.7m.

• We see contracts flow to only kick in towards end-2020 following the change in helm of the government while the economy gradually recovers. Moving forward, Protasco’s construction outstanding orderbook of over RM500.0m will provide earnings visibility over the next 2-3 years. For 2020, we have slashed our orderbook assumption replenishment to RM100.0m (from RM200.0m previously).

• The maintenance segment will provide some cushion to the weakness from other segment’s earnings backed by an outstanding orderbook to approximately RM3.80bn that will see recurring stream of income till 2029. With both Sentrio Business Centre and D'Perdana Telipot developments take-up rates remain unimpressive, both projects have yet to commence construction. Therefore, there will be no contribution over the near term.

• Meanwhile, Protasco’s joint development with Penmaland on the 137.1-ac. development of affordable landed housing projects close to Tampin town will see Phase 1 of double-storey terrace house with a GDV of RM60.0m to be launched in 4QFY20. Amid the challenging economic conditions, Protasco is actively seeking to monetise some low-yield assets, should opportunity arise.

Source: Mplus Research - 25 Jun 2020