Protasco’s FY19 core PATAMI of RM6.0m were below both our and consensus estimates. Results missed our expectations due to lower contribution from maintenance and property segments. Current outstanding construction orderbook stands at RM515m, translating into a decent cover ratio of 2.0x to FY18 construction revenue. We are ceasing our coverage on Protasco due to lack of catalysts and reallocation of our internal resources. Our previous forecast, HOLD recommendation and TP of RM0.31 (based on 0.45x FY20 BV) should no longer serve as a reference going forward.

Below expectations. Protasco reported 4QFY19 results with revenue of RM242.2m (+7% QoQ, -6% YoY) and core PATAMI of RM1.0m (+9% QoQ, 4QFY18: -RM3.0m). This brings FY19 core PATAMI to RM6.0m, against core loss of RM6.9m in FY18. FY19 core PATAMI accounted for 52% of our full year forecast (consensus: 58%), which is below both ours and consensus expectations. The earnings shortfall was largely due to higher than expected minority interest in relation to its maintenance segment.

Dividends. No dividend was declared during the quarter (FY18: nil, FY19: 1.2 sen).

Deviations. The results shortfall was mainly due to lower than expected contribution from maintenance and construction segments.

QoQ. Core PATAMI increased by 9% as a result of lower taxes for the quarter partially offset by lower construction progress billings for PPA1M Phase 2 project.

YoY. Core PATAMI of RM1.0m recorded against RM3.0m core loss in4QFY18 was mainly due to lower contribution from construction and education segments and lower operating expenses driven by cost optimisation initiatives.

YTD. Core PATAMI of RM6.0m was recorded against RM6.9m core loss in FY18 mainly due to lower operating expenses arising from ongoing cost optimisation initiatives from the maintenance segment

Construction. Current outstanding orderbook stands at RM515m, translating into a decent cover ratio of 1.8x to FY19 construction revenue. PPA1M Phase 2 and 4 amounts to 96% of the outstanding orderbook. Going forward the segment’s performance will continue to be driven by PPA1M Phase 2 project and DID works. The company is bidding for RM1bn of jobs consisting of civil servant housing, building and infrastructure projects.

Property. Previously unsold completed stock of RM23m has been rented out. Protasco is expected to launch Tampin Land project with GDV of RM3712m in 1H20 (against previous guidance of 4Q19). The company owns c.100 acres of land in Kajang, Pasir Gudang and Sandakan combined and may monetise these assets if the desired valuation is met.

Cease coverage. We are ceasing our coverage on Protasco due to lack of catalysts and reallocation of our internal resources. Our previous forecast, HOLD recommendation and TP of RM0.31 (based on 0.45x FY20 BV) should no longer serve as a reference going forward.

Source: Hong Leong Investment Bank Research - 28 Feb 2020