20 sen single-tier dividend declared for FY12. The company declared a single-tiered final dividend of 12.5 sen, bringing total dividend for the year to 20 sen single-tier. Because of Pintaras Jaya's high free cash flow business model and its strong RM122.4m net cash position, we expect the company to maintain at least a 20 sen single-tier dividend in FY13. This translates to a 7% FY13 net dividend yield at the current share price and still a 5% net dividend yield at our RM3.99 fair value.

Non-cash fair-value losses pushed down FY12 earnings. Pintaras Jaya reported a RM13.1m fair-value loss on its quoted investment in 1QFY12 and this non-cash figure has distorted its FY12 earnings. Having adopted the newly revised Financial Reporting System (FRS) 139 in 1QFY11, the company is required to reflect value changes on its quoted investments as 'fair value gain/loss on financial assets at fair value through profit or loss'. The RM13.1m recorded in  1Q  represented  the  q-o-q  decline  in  the  market  value  of  its  quoted  investments  and  did  not  necessarily indicate unrealised losses. In fact, the company realised RM5.9m gains on the disposal of its quoted investments in FY12.

The long-term durable competitive advantages. Ten years ago, Pintaras Jaya recorded about RM8m earnings when there  was an abundance of strategic landbanks in Klang Valley. As the land in Klang Valley becomes scarcer and more expensive, demand for high rise commercial and residential  buildings  is  expected  to  escalate.  Because  of  these  enduring  economic  characteristics, the company's earnings  ballooned  from RM8m a decade ago to RM41.3m in FY12, and is expected to continue growing in the coming years.

The  stock  should  be  re-rated.  Pintaras  Jaya  is  trading  at  only  5x  FY13  PER,  and  only  2.5x  FY13  PER  after  incorporating  its  RM1.53  cash  per share (RM122.4m net cash as at 30 June 2012) into the valuation. Its FY13 net dividend yield is expected to be 7% based on the current share price  and  still  an  attractive  5%  based  on  our  fair  value.  Our  core  earnings  estimates  only  include  its  construction  and  metal  container manufacturing businesses, excluding any realized and fair value gains/losses on the quoted investments.  Moreover, it is still trading below its RM2.97  FY12  NTA/share.  We  think  Pintaras  Jaya  should  be  re-rated  not  just  for  its  attractive  valuation  but  also  because  it:  (i)  is  among  the nation's largest companies involved in piling, earthworks and substructure works (ii) is a reputable company that has been involved in iconic projects  such  as  Pavilion,  St.  Regis,  Marc  Residence,  Setia  Walk,  etc;  (iii)  has  been  profitable  every  year  since  FY95,  except  in  FY01;  (iv)  has been  reporting  RM10m-RM41.3m  in  core  earnings  for  the  past  eight  FYs;  (v)  had  RM122.4m  in  net  cash/cash  equivalent  as  at  30  June  2012 and no borrowings; (vi) is running a high free cash flow business;  (vii) has dividend payout ratio of >37% since FY09. Our fair value is derived from pegging the company's 10-year average PER of 7x on its FY13 earnings.

Source: OSK