• Pintaras’ core net profit fell 24% yoy to RM7.3m in 1QFY21 but rebound qoq from a core net loss of RM8.0m in 4QFY20. The lifting of Covid-19 pandemic lockdown allowed works to resume during the quarter.
• We expect better results in subsequent quarters driven by the acceleration of work progress for its Singapore projects, which comprise the bulk of its remaining order book of over RM500m.
• We cut our core EPS by 6% in FY21-22E but lift core EPS by 8-13% in FY22- 23E. Based on a higher CY21E PER of 10x, we lift our TP to RM3.07 as earnings visibility has improved. We upgrade our call to BUY from Hold.

Boosted by investment gain

Pintaras’ core net profit of RM7.3m in 1QFY21 only comprises 14-15% of consensus and our full-year forecasts of RM48-50m. Overall, core earnings recovery in 1QFY21 is lagging our forecast and hence we deem the results were below market and our expectations. Investment gains of RM5.9m boosted its net profit to RM12.5m (125% yoy and 5-fold qoq) in 1QFY21. Revenue jumped 172% qoq to RM70.3m in 1QFY21 as construction sites reopened and works resumed for its ongoing projects in Malaysia and Singapore. With the rebound in revenue and cost control measures implemented, EBIT margin recovered to 26.5% in 1QFY21, similar to 1QFY20.

Strong new contract wins

Pintaras saw its highest new contract wins at RM562m in FY20, comprising 19 piling contracts for building projects in Singapore. The momentum continues by clinching 5 new piling contracts in Singapore worth RM163m for YTD FY21 (Fig 2). High remaining order book of over RM500m will support earnings growth in FY21-23E. We raise our new contract win assumptions to RM400m p.a. in FY21-23E (previously assumed RM300m/RM350m/RM400m respectively) to reflect the strong demand for piling services in Singapore from both the public and private sectors.

Earnings momentum to accelerate

We believe Pintaras’ high new contract wins in Singapore and sustained strong demand for piling services will drive strong earnings growth over the next 3 years. FY21E PER of 10x is attractive, considering strong 3-year core EPS CAGR of 16%. We believe Pintaras will increase DPS to 15-19 sen in FY21-23E (trimmed from 18- 20 sen previously) as earnings and FCF improve, supported by its high net cash of RM78m or RM0.47/share. Attractive net yield of 5.6% in FY21E. Upgrade to BUY. Key downside risks are slow progress billings and weak new contract wins.

Source: Affin Hwang Research - 30 Nov 2020