We believe Pintaras Jaya as a piling and engineering expert has been under investors’ radar. We expect strong 3-year EPS CAGR of 46% in FY16-19E, benefiting from the current construction boom. As supply for piling services tightens, we believe Pintaras will be able to secure RM250m new contracts from RM1bn worth of tenders and utilise its idle capacity. We initiate coverage with a BUY call and RM4.62 target price, based on CY18E PER of 15x. Its net cash of RM172m or RM1.00/share should support net DPS of 20 sen (net yield of 5.2%).

Benefit From Big Construction Wave

We expect Pintaras to benefit from the construction sector GDP growth of 8% in 2017E and estimated infrastructure projects worth RM150bn to be implemented. Despite the subdued property market, buildings-related construction awards have grown marginally by 6% from 1Q16 to 3Q16. Large-scale infrastructure and RM85bn worth of high-rise property development projects should drive strong demand for piling services. Normally, piling services make up about 5-10% of the total project value. As supply for piling services tightens, we expect Pintaras to reap better profit margins from new contracts.

Filling Up Order Book

We gather that Pintaras is targeting to secure RM250m worth of new contracts this year. Although the outstanding order book is low at RM50m, we believe Pintaras has a good chance to win contracts with its readily available capacity, given the potential shortage of piling industry capacity.

Strong Earnings Rebound

We forecast its EPS to grow at 46% CAGR in FY16-19E based on it securing RM250-300m per annum worth of projects. Its manufacturing segment contributes recurring net income of RM5m per annum. Pintaras already achieved net income of RM24.5m in 1HFY17, surpassing net profit of RM17.8m in FY16 by 38%. We forecast net profit of RM35m in FY17E (+98% yoy), assuming a weaker 2HFY17 due to its depleting order book.

Initiate Coverage With a BUY Rating

We initiate coverage on Pintaras with a BUY call and a RM4.62 target price, based on weighted average peer target CY18E PER of 15x. We estimate net dividend yield of 5.2%. Pintaras’ current CY18E PER of 12.4x is attractive, lagging peers’ PER of 16.2x for Suncon and 16.4x for Econpile and below its one standard deviation forward PER of 20x.

Source: Affin Hwang Research - 25 May 2017