• Pintaras posted a weak set of 1QFY18 earnings which fell 72% yoy but rose 15% qoq to RM4m as the construction division suffered from low order book replenishment in FY17 while the manufacturing was impacted by higher input costs.

• Against our estimates, 1QFY18 earnings made up only 10% of ours and 9% of consensus. We made no changes for now as we expect some earnings respite ahead of new job wins in FY18.

• Management remains positive on Pintaras earnings outlook for the Construction segment where it expects a better 2HFY18.

• HOLD with SOP-derived TP of RM3.80. Pintaras continues to command strong cash balance worth RM1.04/share as at end Sep 30. Historically, it has rewarded investors with strong dividend payouts; current prices imply a decent yield of 4-6%.

A weak start

Its 1QFY18 earnings fell 71.6% yoy to RM3.8m as the construction division continues to reel from its poor orderbook replenishment rate in FY17. Construction revenue declined 78% as a results. This was exacerbated by manufacturing division which was impacted by higher input costs and weak demand. At pretax level, earnings declined 76% yoy although this was partially mitigated by lower effective tax rate on higher utilization of deferred tax assets.

Sequential improvement but off a weak base

Pintaras performed better on qoq basis with earnings rising by 15% qoq. While 4QFY17 earnings was boosted by a positive tax charge, the ‘rebound’ in 1QFY18 only matched the earnings run rate in FY16 where it was also faced with a low replenishment of orderbook after a strong performance in FY14 and FY15.

Some respite ahead

We make no changes in our estimates as we expect some earnings respite in coming quarters. Management guided for a stronger 2HFY18 as more jobs are recognized. We also expect orderbook to be replenished amidst rising demand for affordable dwellings while major infrastructure job packages (ie. LRT 3, MRT 2) have been mostly awarded. Elevated steel prices could also safeguard margins as we continue to believe that Pintaras’ strong rapport in the piling subsector could be an edge over its peers.

Maintain HOLD with TP of RM3.80

Maintain HOLD with an RM3.80 SOP-derived TP. Our TP implies FY18F PE of 15.7x before easing to 12.4x in FY19F.

Source: BIMB Securities Research - 27 Nov 2017