Results

• Protasco reported 4Q17 results, displaying revenue of RM313.6m (+4% QoQ, +19% YoY) and earnings of RM8.7m (-16% QoQ, +267% YoY).
• Full year FY17 revenue totalled RM966.8m (-11% YoY) while earnings totalled RM30.2m (-32% YoY).

Deviation

• FY17 earnings were within expectations at 98% of our full year forecast and 97% of consensus.

Dividends

• Thus far, a 3 sen dividend has been paid for FY17. Management guides for another 3 sen to eventually be declared to bring the full year sum (in respect of FY17) to 6 sen (unchanged YoY).
• However, given the FY17 earnings decline, we maintain our FY17 dividend forecast at 5 sen (70% payout).

Highlights

• Road maintenance picking up. Maintenance revenue showed its 3rd consecutive quarter of pickup with 4Q revenue and PBT increasing 14% and 33%, respectively. This recovery pushed FY17 revenue and PBT to stage a 15% and 65% YoY growth. Public spending on road maintenance is expected to remain strong running up to the 14th General Elections.
• Construction slumps. While FY17 construction revenue declined 41% YoY (timing gap between completion of PPA1M Phase 1 and commencement of Phase 2), PBT fell by a larger magnitude of 80%. Margin contracted YoY from 8.9% to 2.9% due to (i) additional interest cost incurred for PPA1M Phase 1; and (ii) cost overruns for its AFC building job.
• Slow on launches. Property revenue plunged 93% YoY for FY17 while PBT was almost non-existent at RM0.5m (-93% YoY) due to the absence of any new launches YTD coupled with slow inventory sales. In terms of new launches, management shared that it will be launching (i) shop lots in Pasir Gudang (RM120m) in March; and (ii) Telipot Apartment, Kota Bahru (RM160m) in May-June this year.

Risks

• Slow public spending on road maintenance, low construction margin and weak property sales.

Forecasts

• Unchanged as the results were in line.

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Maintain HOLD, TP: RM1.14.

• Given the continued weak results, we see limited upside catalysts for the stock. Downside risk should however be capped given its FY18-19 dividend yield at 5.4-6.7%.

Valuation

• Our unchanged TP of RM1.14 is based on 12x P/E tagged to FY18 earnings.

Source: Hong Leong Investment Bank Research - 28 Feb 2018