Results

• Protasco reported 2QFY17 results, displaying revenue of RM219.8m (+66% QoQ, -45% YoY) and earnings of RM7.9m (+140% QoQ, -45% YoY).

• Cumulative 1H revenue amounted to RM315.9m (-33% YoY) while earnings totalled RM11.2m (-60% YoY).

Deviation

• 1H earnings made up 31% of our full year forecast. We regard this to be inline given our projection for an earnings recovery in 2H. Our postulation for a sequential earnings recovery is already evident in 2Q which was up 140% QoQ.

Dividends

• None declared. Usually in 4Q.

Highlights

• Slow spending for road maintenance. Maintenance revenue and PBT for 1H fell by 9% and 37% respectively. This was attributed to (i) non-renewal of the Selangor state road concession which still contributed in 1H last year and (ii) delay in issuance of periodic work awards. Management guides that public spending on road maintenance has been rather slow this year. Nonetheless, we are hopeful that this will gather pace as we draw closer to the impending 14 th General Elections (house view: March 2018).
• Challenging for construction. Construction revenue fell 46% YoY in 1H while PBT plunged by a larger magnitude of 67%. The topline decline was due to timing gap between the completion of the PPA1M Phase 1 (affordable housing) and commencement of Phase 2. PBT margin contracted to 5.3% in 1H (from 8.6%) due to cost overruns for one of its infra jobs.
• New launches needed. Property revenue was almost non existent in 1H at RM3.2m due to the completion of all its developments coupled with no new launch since the last 2 years. Management guides that launches are set to revive in 2H which include Telipot Apartment (RM160m) in Kota Bahru and shop lots in Pasir Gudang (RM120m).

Risks

• Slow public spending on road maintenance.

Forecasts

• As the results were inline we maintain our earnings forecast.

Rating

Maintain BUY, TP: RM1.20

• While the results were lacklustre, we are hopeful for a recovery in 2H. Dividend yield is also attractive at 5.7% and 7.7% for FY17-18 which we reckon could cap any significant share price downside from here.

Valuation

• Our TP of RM1.20 is based on an unchanged 12x P/E multiple tagged to mid-FY18 earnings.

Source: Hong Leong Investment Bank Research - 28 Aug 2017