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Dear ICON8888,ROE comprised on three parts. Net profit Margin, Net Assets Turnover and Equity Multiplier.

In term of net profit margin, its core business (exclude other operating income) profit before tax margin in 2013 is almost 30% as compared to 24% in 2012. If you look at the breakdown on cost of sales, there is a substantial drop of subcontracting costs. As a ratio to revenue, the drop was 7% (6.4% in 2013 and 13.9% in 2012).

The Group recognizes contract profits based on ‘percentage-of-completion method’. The stage of completion is measured by reference to the contract costs incurred to date to the estimated total costs for the contract.

There must be an over-provision of subcontracting costs in 2012 and when projects were completed in 2013,there is a reversal of these estimated costs.

The reasons for the improve margin over the years were three folds:
a> Increased order books,
b> Ability to invest in P&M for mechanization to improve productivity, evidence from its high capex right from 2011 to 2013.
c> Tight cost control measures with minimum incremental overhead costs.

Despite its lower dividend payout ratio from 42.8% in 2012 to 34.5% in 2013 and the extra cash were invested in quoted shares mainly in Malaysia, Hong Kong and Singapore.

The total shareholders' return in 2012 and 2013 were 15.2% (DY 1.6% & realized capital Gain 13.5%) and 26.8% (DY 3.2% & CG 23.6%). These were computed based on dividend income & capital gain over average AFS balance. These return was comparable to its core business but more risky. Going forward, i think it will be difficult to achieve these results.

If not for the poor 2.8% return on its FD and cash holding, its ROE could be better.

FYE 2013 and recent 2 quarters of FYE 06/14 showed a slowdown compared to previous years. Pintaras should not have problem to replenish its order books in view of the impending big ticket civil jobs on the pipeline, but whether there will be a margin compression due to price war in view of the excess capacity built up during the MRT and housing development boom.

Other than the margin, the net assets turnover and equity multiplier were hovering around 0.5 and 1.2 respectively.

If there is limited room for further organic growth or opportunities to diversify through accredit M&A in coming years. Pintaras management should seriously consider special dividend payout instead dabbling in the high risk stock market or keeping cash in the FD accounts which produce miserable below par return.

2014-04-15 11:10

Icon8888

Thank you

2014-04-15 11:37