Summary

• Protasco Bhd's 4QFY22 net loss stood at -RM20.8m vs. a net profit of RM7.2m recorded in the previous corresponding quarter, due to (i) weaker contribution from the maintenance, trading, education and energy segments, (ii) higher finance expenses and (iii) higher impairment of trade receivables. Revenue for the quarter slipped 24.7% YoY to RM305.8m.

• For FY22, cumulative net loss stood at -RM30.6m vs. a net profit of RM16.7m recorded in the previous corresponding period. The reported figures were a distance against our expected net loss of -RM8.8m for FY22f. The variances are mainly due to the higher-than-expected impairment on trade receivables from the engineering & consultancy segment and weaker maintenance contribution due to lower periodic works performed.

• Going forward, the outstanding construction orderbook of approximately RM400.0m (as at end-FY22) will provide earnings visibility over the next 2-3 years. We gather that road upgrading works at Kulim valued at RM229.2m is at still infant stage (4% completion), while the Prihatin housing project valued at RM442.7m is expected to commence this year. This may boost contribution from the construction segment that was inactive over the past 3 financial years.

• The maintenance segment is expected to anchor the revenue and profitability in subsequent quarters, backed 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 underpinned by an outstanding maintenance orderbook of c.RM2.10bn.

• We gather that Jade Hill, Tampin development (Phase 1) comprising landed properties that carries a total gross development value of RM21.0m was launched and that may beef up the contribution from property development segment. While the education segment to stay in the red in FY23f due to the lower student population from China, we reckon that diversification efforts into the hospitality and clean energy segment are bearing fruits with both the segments are operating near breakeven levels. Still, both the contributions are expected to remain miniscule (<5.0% of total revenue).

Valuation & Recommendation

• Given that the reported numbers came below expectations, we revised our FY23f and FY24f forecast core net profit lower by 17.9% and 12.2% to RM11.8m and RM14.4m respectively, on the back of the weaker engineering & consultancy segment, coupled with lower periodic works under the maintenance segment. We downgrade PRTASCO to SELL with a lower target price of RM0.17.

• 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) stronger-than-expected construction orderbook replenishment amount, (ii) more work orders for the concession segment (iii) better property sales from new launches in its property business unit.

Source: Mplus Research - 24 Feb 2023