Protasco’s 1HFY19 core PATAMI of RM4.0m were below both our and consensus estimates. This is mainly due to lower contribution from maintenance and property segments. Current outstanding construction orderbook stands at RM655m, translating into a healthy cover ratio of 2.5x to FY18 construction revenue. Cut FY19-20 earnings forecast by 9.7% and 35.4% respectively after taking into account lower contribution from maintenance and property segments. Introduce FY21 earnings forecast of RM9.5m. Maintain SELL rating with lower TP of RM0.18 (from RM0.20) following earnings cut. Our TP is pegged to 7x FY19 earnings.

Below expectations. Protasco reported 2QFY19 results with revenue of RM188.6m (+13% QoQ, -22% YoY) and core PATAMI of RM2.8m. This brings 1HFY19 core PATAMI to RM4.0m, against core loss of RM3.1m in 1HFY18. 1HFY19 core PATAMI accounted for 28% of our full year forecast (consensus: 30%), which is below both ours and consensus expectations.

Deviations. The results were below expectation mainly due to lower than expected contribution from maintenance and property segments, partially offset by stronger performance in construction segment.

QoQ. Core PATAMI more than doubled (amid a low base) mainly due to stronger performance from construction segment that was contributed by Perumahan Penjawat Awam (PPA) Phase 2 and Drainage and Irrigation (DID) works.

YoY. Core PATAMI of RM2.8m recorded against RM1.0m core loss in 2QFY18 was mainly due to high contribution from construction segment and lower operating expenses.

YTD. Core PATAMI of RM4.0m was recorded against RM3.1m core loss in 1HFY18 mainly due to lower operating expenses arising after down-sizing exercise and stronger performance from construction segment.

Construction. Construction segment has turned around since provisions amounting for cost overruns in certain completed projects have been incurred last year. Going forward the segment’s performance will continue to be driven by PPA Phase 2 project and DID works. Current outstanding orderbook stands at RM655m, translate into healthy cover ratio of 2.5x to FY18 construction revenue.

Property. Unsold completed stock has stands at RM24m and Protasco is expected to launch Tampin Land project with GDV of RM371m in 4Q19.

Forecast. Cut FY19-20 earnings forecast by 9.7% and 35.4% respectively after taking into account lower contribution from maintenance and property segments. Introduce FY21 earnings forecast of RM9.5m

Maintain SELL, TP: RM0.18. Maintain SELL rating with lower TP of RM0.18 (from RM0.20) following earnings cut. Our TP is pegged to 7x FY19 earnings.

Source: Hong Leong Investment Bank Research - 4 Sept 2019