Pintaras Jaya recorded core net profit of RM29.6m in 6MFY20, 1.9x higher compared to 6MFY19. On a sequential basis, core net profit increased by 1.1x. This was mainly due to higher revenue (+39% qoq), mostly contributed by its piling services operation in Singapore. The positive earnings surprise was, however, largely due to a tax write-backs. We raise our FY20-22E earnings to account for the higher-than-expected results. Maintain BUY with an unchanged TP of RM4.04 based on FY20E PER target of 12x.

Above Our Expectations Due to Tax Write-backs

Pintaras reported a net profit of RM29.5m in 6MFY20, up 5x yoy. This was on the back of higher revenue (+71% yoy), mainly contributed by its Singapore operation, which made up around 80-90% of group revenue. Excluding one-off items, core net profit jumped 1.9x yoy to RM29.6m, which was above consensus and our previous expectations. This is partly due to a lower-thanexpected effective tax rate.

Current Order Book of RM330m

On a sequential basis, core net profit improved by 1.1x yoy to RM20m. Revenue increased by 39% qoq on the back of higher piling revenue (+43% qoq), driven by higher volume of construction works. Pintaras reported positive tax expense of RM1.4m in 2QFY20 due to over-provision in the prior financial period. That said, we expect its effective tax rate to normalize to 20-24% in the subsequent quarters. We lower our effective tax rate assumption to 17% in FY20E (vs. 20% previously). Pintaras’ current order book stands at about RM330m and is expected to support its earnings in FY20. We expect the group to secure more contracts in FY20 given its high tender book of RM3.3bn.

Maintain BUY

We increase our FY20-22E earnings by 2-4%, also accounting for faster revenue recognition, given shorter project duration in Singapore. We maintain our BUY call on the stock with an unchanged TP of RM4.04 based on FY20E PER of 12x. Its FY20E PER of 9x and net yield of 7% remain attractive. Its balance sheet position remains strong with net cash of RM56m or RM0.34/share.

Key Risks

Key downside risks are: (1) inability to secure piling jobs will pose earnings risk; (2) earnings lag due to timing of contract wins; (3) thinner margins due to a competitive environment; (4) defect liabilities and execution risks; and (5) slowdown in construction contract awards.

Source: Affin Hwang Research - 24 Feb 2020