• Founded more than two decades ago, Protasco specialises in the maintenance of federal, state and rural roads in Malaysia. It is also engaged in construction, property development, engineering and consultancy, education, and trading/manufacturing of building materials and products.

• Protasco is the largest of the three federal road maintenance concessionaires in Peninsular Malaysia. Via 51%-owned Roadcare (M) Sdn Bhd (Roadcare), it controls the central and eastern regions covering Selangor, Pahang, Terengganu and Kelantan, while its peers, private companies Belati Wangsa (M) Sdn Bhd and Selia Senggara Sdn Bhd are in charge of the northern region (Perlis, Kedah, Penang and Perak) and the southern region (Negeri Sembilan, Melaka and Johor) respectively. Based on our estimates, Roadcare has a 49% market share in terms of total annual billings of Peninsular Malaysia’s federal road maintenance concessionaires.

• The key factors of our investment case for Protasco are: 1. Sturdy recurring incomes from road maintenance concessions, which encompass routine, periodic and emergency maintenance works. Currently, Protasco’s road concession outstanding order book for its six road maintenance concessions is valued at RM4.2bil, covering almost 10,000km of federal, state and rural roads across the country; 2. Competitive contractor for affordable housing. To date, Protasco has secured two PPA1M housing construction projects. With the federal government planning to increase the number of PPA1M houses to 200,000 units, Protasco is poised to be the contractor of choice given its past good track record; 3. It is well positioned to benefit from the next upcycle in the property market via more aggressive launches from its mixed development project, De Centrum, which is strategically located to south of Kuala Lumpur; and 4. Attractive dividend payout. Protasco offers a good dividend yield of ~6-7% annually.

• We project its FY18/19 earnings to grow by 24%/8% underpinned by: 1) strong outstanding road maintenance concession order book of RM4.2bil; 2) strong earnings visibility over the long term from the road maintenance concession which will last till FY2026; and 3) potentially new affordable housing projects. We initiate coverage of Protasco with a BUY call and an SOP-based fair value of RM1.33 (Exhibit 14).

Source: AmInvest Research - 23 Oct 2017