Summary

• Protasco Bhd's 4QFY21 net profit stood at RM6.8m vs. a net loss of RM20.6m recorded in the previous corresponding quarter, mainly driven by the (i) higher contribution from the road maintenance segment, construction and clean energy segments, (ii) turnaround in the construction segment and (iii) reduction of losses from property development and engineering & consultancy segments. Revenue for the quarter improved 29.1% YoY to RM403.4m.

• For FY21, cumulative net profit stood at RM16.2m vs. a net loss of RM25.2m recorded in FY20. Revenue for the year added 11.5% YoY to RM1.11bn. The reported net profit makes up to 119.2% of our net profit forecast of RM13.6m. The variance is mainly due to the better-than-expected contribution from the construction segment.

• After a difficult period for the construction segment over the past two years, we think that a recovery is largely on sight. For now, Protasco will leverage on its past expertise to ride onto the Budget 2022 announcement for the construction of lowcost 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 RM371.5m will see the development period for seven years. That may bolster the property development segment in subsequent years.

• We foresee that the maintenance segment will continue to anchor the earnings sustainability, supported by the long-term concession agreement that will ensure recurring stream of income till 2029. We believe that Protasco may also be able to tap into the RM3.50bn allocated for infrastructure projects under Budget 2022.

• While the upliftment of lockdowns may contribute towards the revival construction sector, the absence of orderbook replenishment may continue to bog down the construction segment. Meanwhile, the group’s diversification efforts to mitigate some risks from the slowdown in construction sector through the diversification into hospital and clean energy segments are bearing fruit.

Valuation & Recommendation

• Although the reported earnings came above our expectations, we made no changes to our earnings forecast. We reckon that earnings growth may remain rocky amid the lack of orderbook replenishment. Still, we maintained our BUY 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 - 25 Feb 2022