Summary

• Protasco Bhd's 3QFY20 net loss stood at RM0.4m vs. a net profit of RM1.0m recorded in the previous corresponding quarter, dragged down by the higher effective tax rate and higher minority interest. Revenue for the quarter, however, rose 66.3% YoY to RM376.5m. For 9MFY20, cumulative net loss stood at RM4.6m against a net profit of RM4.9m recorded in the previous corresponding period. Revenue for the period, however, gained 17.6% YoY to RM683.7m.

• The reported losses were within our expectations against our net loss forecast of RM4.6m for the year as we reckon that the final quarter figures will remain tepid, while consensus forecasted a net loss of RM10.8m for FY20f. Meanwhile, the reported revenue came above our expectations, amounted to 109.1% of our full year estimate of RM626.5m and 134.1% of consensus estimate of RM510.0m.

• We note that new contracts flow remain absent in 3QFY20, implying tapering of construction orderbook. Moving forward, Protasco’s construction activities will be supported by the PPAM Phase 4 project following the completion of Pulau Indah Industrial Park Phase 3C. We believe that the construction segment will remain challenging owing to the implementation of Conditional Movement Control Order (CMCO) that may delay physical works.

• On a brighter note, the maintenance segment is expected to provide some alleviation to the weakness across other segments, backed by an outstanding orderbook to approximately RM3.70bn that ensure recurring stream of income till 2029. We expect Protasco to tap into the RM1.30bn allocation for construction and upgrading of rural roads for 920km under Budget 2021.

• Both the Sentrio Business Centre and D'Perdana Telipot developments take-up rates remain unimpressive as both projects have yet to commence construction. Therefore, we reckon that contribution from the property development for FY21f will be marginally coming from the launch of affordable landed housing projects with a GDV of RM60.0m that comprise of double-storey terrace houses.

Valuation & Recommendation

• With the reported results came in line with our estimate as we expect final quarter numbers to be flat, we made no changes to our earnings forecast. Looking ahead into FY21f, we think that the valuations have now turned more appealing following the share price weakness. Therefore, we upgrade Protasco to BUY (from Hold), but with a lower target price of RM0.28 (from RM0.31).

• Our target price is derived via a sum-of-parts basis by ascribing a target PER of 8.0x to its FY21f fully diluted construction earnings as well as a target PER of 8.0x to its fully diluted FY21f concession and engineering services’ earnings. Its education and trading units’ valuations remain pegged at target PERs of 6.0x respectively due to its smaller scale businesses, while its property development division is pegged to lower BV; at 0.4x (from 0.5x) amid the weak property market outlook.

• Risks to our forecast and target price include (i) weaker-than-expected the targeted construction orderbook replenishment amount, (ii) slower work orders for the concession segment (iii) weaker property sales from new launches in its property business unit.

Source: Mplus Research - 27 Nov 2020