Summary

• Protasco Bhd's 4QFY20 net loss stood at RM20.1m vs. a net profit of RM1.3m recorded in the previous corresponding quarter, dragged by higher operating expenses, coupled with a tax reversal of RM2.7m recorded in the previous corresponding quarter. Revenue for the quarter, however, rose 31.5% YoY to RM318.4m. For 12MFY20, cumulative net loss stood at RM24.7m against a net profit of RM6.0m recorded in the previous corresponding year. Revenue for the year, however, gained 21.7% YoY to RM1.00bn.

• The reported losses exceeded our expectations against our net loss forecast of RM4.6m for the year due to weaker-than-expected construction and property development segments. Meanwhile, the reported revenue exceeded our expectations, amounted to 129.0% of our full year estimate of RM776.9m.

• We were unperturbed by the absence of new contracts flow in 4QFY20, suggesting that the tapering construction orderbook may continue to pose a risk to earnings recovery. 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. Still, we reckon that the Movement Control Order (MCO) 2.0 may also result in delay of physical works in 1QFY21.

• Elsewhere, the maintenance segment is expected to cushion the weakness across other segments, backed by an outstanding orderbook of approximately RM4.00bn that ensure recurring stream of income till 2029. We remain upbeat on Protasco’s prospects to tap into the RM1.30bn allocation for construction and upgrading of rural roads for 920km under Budget 2021.

• On the property development segment, both the Sentrio Business Centre and D'Perdana Telipot developments have yet to commence construction as take-up rates remain at subtle level. 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

• Despite the reported figures coming below our expectations, we made no changes to our earnings forecast as we believe that a mild recovery is in sight for FY21f. Given the share price recent appreciation, we downgrade our recommendation on Protasco to HOLD (from BUY) with an unchanged target price of RM0.28.

• 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 BV at 0.4x 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 - 30 Mar 2021