Summary

• Protasco Bhd's 2QFY22 net loss stood at RM3.6m vs. a net profit of RM6.4m recorded in the previous corresponding quarter, mainly due to higher operating and administrative expenses and higher depreciation charges. Revenue for the quarter, however, added 21.9% YoY to RM231.0m.

• For 6MFY22, cumulative net loss stood at RM9.1m vs. a net profit of RM6.5m recorded in the previous corresponding period. The reported figures fell short of our previous forecasted net profit of RM17.7m for FY22f. We reckon that downward pressure remains on the cards, particularly from the construction segment as new construction contracts secured in recent times will only deliver bigger contribution from FY23f onwards.

• Outlook remain challenging amid the rising building material costs continues to affect the margins in the general construction industry. Moving forward, their outstanding construction orderbook of RM442.0m (as at end-2QFY22) will provide earnings visibility over the next 2-3 years.

• We believe that the maintenance segment will remain as the key revenue and profit contributor for FY22f, supported by 2 long-term federal road and 5 long-term state road concession agreements that will ensure recurring income stream till 2029. This will be back by and outstanding maintenance orderbook of RM4.20bn.

• Over at the property segment, upcoming launches are Phase 1 of Tampin development comprising landed properties that carries a total gross development value (GDV) of RM21.0m. Elsewhere, the launch of Sentrio, Pasir Gudang comprising shop houses that carries a total GDV of RM65.0m will also take place in 2H22.

• While the property and education segments may continue to bleed, we gather that diversification efforts to mitigate risks are already bearing fruit. The clean energy segment will be supported by stable recurring income from the large scale solar photovoltaic (LSS PV) plant of 9.0-MW at Masjid Tanah, Melaka. The hospitality segment is also delivering mild improvement as tourism activities picked up in line with the economic recovery. Still, both contributions would remain miniscule.

Valuation & Recommendation

• Amid the backdrop of tough operating landscape, we slashed our earnings forecast by 80.6% and 50.3% to RM3.4m and RM13.8m for FY22f and FY23f respectively, to account for the margins squeeze. We downgrade PRTASCO to HOLD (from Buy) with a lower target price of RM0.18.

• Our target price is derived via a sum-of-parts basis by ascribing a target PER of 7.0x to both its FY23f fully diluted construction and concession segments, while the other segment valuations remain pegged at target PERs of 5.0x respectively due to its smaller scale businesses. Meanwhile its property development division is pegged to BV at 0.4x amid the sluggish 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 - 26 Aug 2022