Summary

• Protasco Bhd’s (PRTASCO) long-term prospects remain uncertain owing to the depleting orderbook from the road maintenance segment, which was the group’s biggest segment contributor over the years. Nevertheless, PRTASCO will continue to leverage onto the total allocation for regular maintenance of federal roads amounting to RM1.00bn that was announced under the revised Budget 2023. For the time being, their outstanding maintenance orderbook of approximately RM2.10bn should provide revenue visibility till 2029.

• Meanwhile, the construction segment is supported by an outstanding orderbook of approximately RM400.0m as at end-FY22, this is expected to see improved contribution from the road upgrading works at Kulim and Prihatin housing project. Still, we reckon that margins may remain under pressure owing to the elevated building material prices and higher labour cost.

• We remain cautious in view of the on-going domestic construction segment that continues to be bogged down by the timing award of the mega-infrastructure projects. Also, the sluggish property development market will continue to see new launches being held back.

• Despite we are sanguine on the diversification move to other segments such as the clean energy and hospitality sectors, it will not be able to mitigate the weakness from the construction and property segments, while the education segment is expected to be in the red.

• Therefore, we are ceasing coverage on PRTASCO due to reallocation of internal resources and the lack of retail and institutional interest. We reckon that the trading activities may remain muted over the foreseeable future amid the lack of fresh leads.

• Our last recommendation on PRTASCO was SELL with a fair value at RM0.17. The fair value was 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.

Source: Mplus Research - 2 May 2023