Protasco’s 1HFY18 core loss of RM3.1m was below both ours and consensus’ full year profit estimates. This was mainly due to lower contribution from property, engineering services and education segments coupled with higher than expected finance costs. Construction division slump into red YTD mainly due to timing gap between completion of PPA1M Phase 1 and commencement of Phase 2. Nevertheless the segment should turn into profit in subsequent quarters as the PPA1M Phase 2 has commenced. Cut FY18-20 earnings by 14- 56% after taking into account higher finance costs and lower contribution from property, engineering services and education segments. Maintain SELL rating with lower TP of RM0.37 (from RM0.47) following earnings cut but slightly offset by the roll forward of valuation horizon from FY18 to FY19. Our TP is pegged to 7x FY19 earnings.

Below expectations. Protasco reported 2QFY18 results with revenue of RM242.2m (+54% QoQ, +10% YoY) and core loss of RM1.0m. This brings 1HFY18 core loss to RM3.1m, against core profit of RM11.2m in 1HFY17, way below both HLIB and consensus full year forecast.

Deviations. The results were below expectations mainly due to lower contribution from property, engineering services and education segments, coupled with higher than expected finance costs.

QoQ. Core loss narrowed by 55% mainly due to higher revenue from maintenance and construction segment.

YoY. Core loss of RM1m recorded against RM7.9m core profit in 2QFY17 mainly due to lower contribution from engineering services and property segment couple with higher overheads in maintenance segment.

YTD. Core loss of RM3.1m recorded against RM11.2m core profit in 1HFY17 mainly due to lower contribution from construction, property and education segment.

Construction. Construction division slump into red for 1H18 mainly due to timing gap between completion of PPA1M Phase 1 and commencement of Phase 2. Nevertheless the segment should return to black in subsequent quarters as the PPA1M Phase 2 has commenced.

Property. Property division recorded loss before tax of RM4.8m YTD against PBT of RM3.3m in 1HFY17 due to the absence of any new launches YTD coupled with slow inventory sales. The company had launched Telipot Apartment, Kota Bahru (RM166m) project in August and is expected to contribute to the property segment this year.

Forecast. Cut FY18-20 earnings forecast by 56%, 21% and 14% respectively after take into account higher finance costs and lower contribution from property, engineering services and education segments.

Maintain SELL, TP: RM0.37. Maintain SELL rating with lower TP of RM0.37 (from RM0.47) following earnings cut but slightly offset by the roll forward of valuation horizon from FY18 to FY19. Our TP is pegged to 7x FY19 earnings.

Source: Hong Leong Investment Bank Research - 28 Aug 2018