Summary

• Protasco Bhd's 2QFY21 net profit stood at RM6.4m vs. a net loss of RM1.7m recorded in the previous corresponding quarter, boosted by the higher contribution from the concession segment due to more periodic works, coupled with the mild contribution of new ventures; hotel and hospitality as well as clean energy segment. Revenue for the quarter increased 10.2% YoY to RM189.5m.

• For 6MFY21, cumulative net profit stood at RM6.5m vs. a net loss of RM4.2m recorded in the previous corresponding quarter. Revenue for the period grew 29.7% YoY to RM398.5m. The reported net profit came within expectations, making up to 47.1% of our net profit forecast of RM13.6m. We expect further recovery is in store towards the remainder of the year with kitchen sinking exercises completed in FY20.

• Expectedly, it was another quiet quarter for Protasco amid the lack of new construction contracts in 2Q21. We remain firm on our stance that the remainder of the year will remain quiet for the construction segment. Still, Protasco will continue to leverage on its expertise in the construction of low-cost housing projects; PPAM and we note that tenderbook is currently at approximately RM3.00bn.

• On the property development segment, the joint mixed residential development project in Tampin, Negeri Sembilan, which has an estimated GDV of RM371.6m will be launched in 4Q21 (after being postponed in 2020). The development period is expected to be approximately seven years.

• On a brighter note, the maintenance segment is expected to support the weakness across other segments, back by the long-term concession agreement that will ensure recurring stream of income till 2029. We remain upbeat on Protasco’s prospects in the concession segment to tap into allocation for the construction and upgrading of rural roads under the upcoming Budget 2022.

• Moving forward, the implementation of Full Movement Control Order (FMCO) may continue to beset the construction sector. Still, their new ventures; hotel and hospitality as well as clean energy have proven to be a success, although contribution is expected to remain miniscule over the foreseeable future.

Valuation & Recommendation

• Given that the reported earnings came within our expectations, we made no changes to our earnings forecast. We maintained our HOLD recommendation on Protasco, with an unchanged target price of RM0.24.

• Our target price is derived via a sum-of-parts basis by ascribing a target PER of 8.0x to its FY22f fully diluted construction and concession segments, while the engineering services, education, trading, hotel and hospitality as well as clean energy business’ valuations remain pegged at target PERs of 6.0x respectively due to its smaller scale businesses. Meanwhile 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 - 28 Sept 2021