Pintaras saw maiden PBT contribution of RM1.7m from its new wholly-owned subsidiary Pintary International in 1QFY19. The acquisition of Pintary for S$5.6m was completed on 14 September 2018. Although the 1QFY19 earnings was lagging our forecast, we believe progress billings on its high order book of RM200m will lift earnings in subsequent quarters. Hence, we maintain our forecasts and HOLD call with TP of RM2.41, based on FY19E PER of 13x.

Lower Core Net Profit

Revenue jumped 74% qoq and 101% yoy to RM38.6m in 1QFY19. PBT increased 55% qoq and 43% yoy to RM5.6m, boosted by RM2.3m net exceptional gains (mainly gain from disposal of equipment). Core net profit plunged 62% qoq and 82% yoy to RM0.4m in 1QFY19, mainly due to high effective tax rate (49.7%) and other expenses.

Maiden Contribution From Singapore Subsidiary

Pintary has remaining order book of RM120m in Singapore, while Pintaras’ domestic operation has outstanding works worth RM80m as at 30 September 2018. Pintary contributed maiden EBIT of RM1.7m in 1QFY19 (EBIT margin of 10.4%) following the completion of the acquisition on 14 September 2018.

Challenging Market

The domestic market for piling services remain challenging due to the ongoing review of government projects while the property developers have scaled back launches of new properties as market sentiment remains weak. But the Singapore market is more vibrant with the government accelerating development expenditure on public facilities, while residential re-development projects led by the private sector are picking up. Current tender book stands at RM2.3bn for the group.

Maintain HOLD and TP of RM2.41

We believe Pintaras is in a relatively better position to weather the slowdown in contruction industry, given its high net cash of RM173m or RM1.04/share as at 30 September 2018. Attractive net dividend yield of 8%. We maintain our HOLD call with a TP of RM2.41, based on FY19E PER of 13x.

Challenging market

Operating profit of RM2.6m (+720% yoy) for its Malaysian operation was mainly contributed by a gain from the sale of equipment of RM3m, which was offset by high other expenses for the quarter. The high other expenses of RM4.7m could be partly due to the corporate exercise expenses to acquire Pintary.

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 Nov 2018