Pintaras’ 1HFY18 result was below market and our expectations. Net profit of RM5.6m (-77% yoy) in 1H18 was only 13% of consensus and our full-year forecasts of RM42-44m. We cut our EPS forecasts by 22- 49% in FY18-19E to reflect the slower progress billings and lower PBT margins. We expect earnings to hit a trough in FY18E and rebound in FY19E driven by rising new contract procurement (RM250m p.a.). We downgrade our call on Pintaras to HOLD from Buy with a lower TP of RM3.95, based on FY19E PER of 15x.

Sharp Decline in Revenue and PBT

Revenue plunged 64% yoy to RM43.5m in 1HFY18 as most of its old projects were completed in FY17 and new contracts secured in 1HFY18 are still at the early implementation stages. It is positive to note that revenue grew 27% qoq to RM24.3m in 2QFY18 from a low base. But PBT fell 79% yoy to RM6.4m in 1HFY18 due to lower profit margin (14.8% in 1HFY18 vs 25.7% in 1HFY17) for new contracts as competition remains stiff for piling services and its industrial can manufacturing business was hit by higher cost for tin plate, which is the main raw material. For the same reasons, PBT fell 34% qoq and 82% yoy to RM2.6m in 2QFY18.

New Contract Procurement Accelerated

Pintaras secured RM143m new contracts YTD and remains optimistic of achieving its RM300m in FY18. Order book expanded to RM130m currently and should support a revenue rebound in 2HFY18. The company has submitted tenders for RM1bn worth of new projects including an infrastructure job worth about RM100m. But we gather that competition has intensified due to the entry of piling companies from China and this is putting pressure on profit margins. Pintaras is focusing on design and build contracts to compete more effectively and sustain its profit margins.

Downgrade to HOLD With Lower TP of RM3.95

We downgrade our call to HOLD from Buy as FY19E PER of 14x is not attractive following our downgrade in earnings. We cut our target price (TP) to RM3.95 from RM4.62 previously to reflect the earnings cut. We rollover the valuation base year to FY19E and apply the same peer average PER of 15x for our new TP.

Source: Affin Hwang Research - 26 Feb 2018