Pintaras’ FY18 result was below market and our expectations. FY18 core net profit of RM11.7m (-65% yoy) only accounted for 61-62% of consensus and our forecasts. We expect earnings to fare better in FY19E driven by higher new contract tenders. We tweaked our FY19E- 20E earnings forecasts by 2-3%, and introduce our FY21E EPS (+1% yoy). We maintain our HOLD call with slightly lower TP of RM2.41 based on FY19E PER of 13x.

FY18 Core Net Profit Declined by 65% Yoy

Pintaras’ FY18 revenue plunged 51% yoy to RM95.9m mainly on lower piling (-61% yoy) revenue, partially offset by higher manufacturing (+4% yoy) revenue. Consequently, net profit was down by 58% yoy in FY18 to RM15.1m, mainly due to lower PBT for both construction (-75% yoy) and manufacturing (-27% yoy) divisions. Construction earnings was affected by the slowdown in construction activities and more competitive rates for newly secured contracts, while manufacturing division earnings was lower mainly due to higher material and operating costs. Excluding one-off items, its core net profit of RM11.7m (-65% yoy) came in below expectations, accounting for only 61-62% of consensus and our forecasts. EBIT margin contracted to 14% in FY18 compared to 19% in FY17.

Better Order Replenishment

Pintaras secured RM150m worth of new contracts in FY18 compared to RM20-30m of new contracts in FY17. Pintaras’ has a remaining order book of c. RM100m and it has submitted new project tenders worth RM0.7bn. But we gather that competition is rising as the government cuts back on infrastructure spending and property market remains subdued. Pintaras intends to focus on the export market particularly in Singapore and Australia to mitigate the slowdown in the domestic construction industry.

Maintain HOLD With Lower TP of RM2.41

We tweaked our FY19E-20E earnings forecasts lower by 2-3% and introduce our FY21E EPS (-1% yoy). We believe Pintaras is in a relatively better position to weather the slowdown in contruction industry given its high net cash of RM183m or RM1.10/share as at 30 June 2018 and attractive net dividend yield of 8%. We maintain our HOLD call with a lower TP of RM2.41 based on FY19E PER of 13x.

Key Risks

Key downside risks are: i) inability to secure piling jobs will pose earnings risk ii) earnings lag due to timing of contract wins; iii) thinner margins due to a competitive environment; iv) defect liablities and execution risks; v) slowdown in construction contract awards. Key upside risk is higher-thanexpected new contracts and profit margin improvement.

Source: Affin Hwang Research - 29 Aug 2018