Pintaras Jaya; good stuff, cheap kcchongnz

kcchongnz

Publish date: Fri, 14 Feb 2014, 11:56 AM

Pintaras Jaya; good stuff, cheap

“Know what you own, and know why you own it. Peter Lynch

In the appended link below, we talked about if one wishes to have a good chance of earning good return from the market; he has to find a good company to invest at a cheap price.

http://klse.i3investor.com/blogs/kcchongnz/45693.jsp

But how do we go about to identify a good company? We will use Pintaras jaya, a construction company specializing in foundation engineering as an example.

Pintaras Jaya just announced its 2^nd quarter 2014 results ended 31 December 2013 with revenue and net profit increased by about 33% and 71% to 47.9m and 17.9m respectively. Net profit margin remains very high at about 30%.

Figure 1 below shows the growth in net profit for Pintaras Jaya since 2006. Except for the year 2009 just after the US sublime crisis, net profit has been growing steadily from 10m to 52.3m, or for whopping compounded annual growth rate of 27%. Can anyone find another great company, especially a construction company which has such a steady high growth?

Figure 1: Growth in net profit of Pintaras

In the previous article, I mentioned that a good company is one which provides a high return of capital. Pintaras uses just $1000 to create $300 in a year. The return on invested capital (ROIC) has been consistently more than 30% for the last few years. I challenge you to find another construction company which replicated the success of Pintaras, or even close to that.

Table 1 below shows the comparison of the return of equity (ROE) using the Du Pont analysis of some construction companies.

Table 1: ROE of construction companies

Company	Kimlun	Ptaras	HSL	Cresbld	Gamuda	IJM	WCT
Net profit margin, NPM	5.5%	30.3%	15.0%	7.0%	14.2%	12.1%	22.5%
Asset turnover, AT	1.22	0.52	0.80	0.61	0.40	0.31	0.29
Financial leverage, FL	2.66	1.22	1.58	2.92	1.92	2.07	2.85
ROE=NPMATFL	18%	19%	19%	13%	11%	8%	19%

DuPont equation provides a broader picture of ROE of a company. It tells where a company's strength lies and where there is room for improvement. It is the epic of financial statement analysis of a company. Investopedia has a very good explanation on why is it important to carry our DuPont analysis on a company’s business as shown in the link below:

http://www.investopedia.com/articles/fundamental-analysis/08/dupont-analysis.asp

A discussion on the performance of the companies and the Du Pont analysis can be viewed from the following link:

http://klse.i3investor.com/servlets/forum/600043762.jsp

It is not hard to see from Table 1 above that Pintaras has the best performance with ROE of 19%, achieved with very high net income margin of 30.3%, at a low equity multiplier (or low leverage) of just 1.2. This is because Pintaras has no debt at all. Pintaras’s asset turnover (AT) is relatively low at 0.5. All it has to do is to grab more jobs and its ROE will further improved.

We also discussed about other complementary attributes of a good company; i.e. good cash flows and free cash flow to ensure quality earnings, and a healthy balance sheet as a prudent risk management. Without cash flows, a company will have to continue to borrow money for preservation of its business, business expansion, buying back shares or distributing dividends.

Table 2: Cash flows

Year	2,013	2,012	2,011	2,010	2,009	2,008	2,007	2,006	Average
Net profit	55,438	42,149	25,682	20,737	16,053	26,314	20,399	10,004	27,097
CFFO	49,090	52,882	22,740	11,624	31,751	19,707	17,214	18,655	27,958
Capex	(8,494)	(20,298)	(30,292)	(10,137)	(1,581)	(10,146)	(11,235)	(6,679)	(12,358)
FCF	40,596	32,584	(7,552)	1,487	30,170	9,561	5,979	11,976	15,600

Table 2 above shows that the quality of earnings of Pintaras is good with consistent positive cash flow from operations approximates that of net profit. For free cash flows, except for the year 2011 when 30.3m was spent on purchasing of new plant and equipment, they have been positive.

The cash generating business of Pintaras provided it with abundant cash for distribution as dividends to shareholders. Adjusted dividends have been increasing from just 5 sen in 2006 to an expected 15 sen per share as shown in Table 3 below, or a prospective dividend yield of more than 5%, much better than the 3.5% from bank fixed deposit. The rest of the free cash flow is left as cash or cash equivalent in the balance sheet. Net cash backing per share alone has increased from 35 sen 8 years ago to 98 sen now.

Taable 3: Dividend and net cash backing per share

Year	2,014	2,013	2,012	2,011	2,010	2,009	2,008	2,007	2,006
Dividend, sen	15.0	12.5	10.0	9.5	7.5	5.0	6.0	5.0	5.0
Net cash per share	98	97	76	64	61	59	46	41	35

Pintaras Jaya as described above is clearly a great company, or a good stuff. It earns high return from capital, good cash flows and a healthy balance sheet, and distributes good dividends. It even had high growth too. Don’t you want to invest in one like this? Wait until we talk about if its price is right at RM2.95 at the close on 13^th February 2014.

KC Chong (14/2/14)

22/3/2014

As on 22 march 2014, Pintaras has secured the jobs below which would contribute to the financial results ended June 30 2014.

Date	Amount, m	Commencement	Period, months
22/04/2013	36	30/04/2013	13
15/04/2013	20	2/05/2013	12
7/10/2013	59	Nov-13	14
19/12/2013	24	Jan-14	12
3/03/2014	24	10/03/2014	6
12/03/2014	74	17/03/2014	12
	237

This amount of jobs certainly is the highest for Pintaras so far. Although the contract amount is small when compared to the jobs secured by other midsized construction firm, it is the bottom-line which is more important. Pintaras net profit margin has been consistent at more than 20% for years. It has in fact reached 30% last year, a feat hardly met by any other construction company.

7/4/14

With a new job secured as announced on 7/4/14, the existing contracts for Pintaras is as below:

Date	Amount, m	Commencement	Period, months
22/04/2013	36	30/04/2013	13
15/04/2013	20	2/05/2013	12
7/10/2013	59	Nov-13	14
19/12/2013	24	Jan-14	12
3/03/2014	24	10/03/2014	6
12/03/2014	74	17/03/2014	12
7/04/2014	71	1/05/2014	16
	308

PTARAS (9598)

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2 people like this. Showing 21 of 21 comments

haikeyila

good write-up. agree that this is a good company. love its zero-debt status and high divvy.

2014-02-14 12:09

wayneteo

Thank you very much for the write up and sharing.

2014-02-14 14:22

investor77

Thanks for the great write up. Analyst Shin Kau Jack from RHB is also very bullish on Pintaras . He also deemed IQ group ( 100% export ) and TAS as good shares to hold.

KC Chong, has anyone highlighted Duta land ? Besides PMCorp, is this another Gem to invest ? Thanks.

2014-02-14 17:16

Alphabeta

Great stuff KC Chong, agreed with your assessment but I have a few comments to make.

In construction industry, earthwork & piling work started first with fast turnaround time especially for building and collect their due in the early stage of the construction cycle. This is good for cash flow with minimum risk of bad debts.

Since the founder and MD, Dr Chiu is 58 years of age, from the board line up, I presumed he is grooming their son Chiu Wei Wen, age 28 to succeed him. His son was major in IT with a diploma in management and already on board slightly more than two years. It will take quite a while before his son can be in the driving seat.

Looking at the past five years Y-O-Y growth trend from 6/09 to 6/13 in term of revenue and profit, the high growth rate achieved in the FY 6/11and 6/12 are accompanied with RM 30 million and RM 20mil capital expenditure. The 6/13 the growth rate has slowed down substantially with better profit margin and accompanied with a low RM 8 million capex. Instead of comparing quarter to quarter growth which can represent a slow start of works in one quarter and completion of more works in another quarter. For Y-OY high growth, there is a co-relationship between capex and growth. For Pintaras to have the Y-O-Y high growth rate it needs to secure higher order books compared to previous year and more investments in PPE to execute increase work load.
As at 6/13 YE it is sitting on a big cash pile of RM 155 million, out of which RM 30 million in investment in quoted securities in Malaysia and Oversea (mainly Hong Kong) which gave comparable return and the balance in cash & short-term deposit which is earning below par income. Despite better net profit margin in 6/13, its ROE could be much better if not due to the drag by higher low productive assets and shareholders’ equity. It should improve its dividend payout policy as it cash position is able to fund growth and better dividend payment.

In view of the oversupply of commercial space and head winds in residential property development, the prospect of growth will come from industrial buildings, MRT2 roll-out and WCE etc. One of its strong competitors is Sunway Geotechnics.

I fully agreed with you that this is a growth stock with decent dividend payment (but could be better), its long-term sustainable growth rate should be in the region of 15% per annum due to the high base factor.

We are in the same page in term of stock selection. Good works, KC Chong…Thanks for sharing.

2014-02-14 17:48

ganasai

good stock, miss the chance? dont worry, this year still got a lot of chance. patient is the key to win.

2014-02-14 18:34

Firebird2

Current price is still below the price just before its bonus 1:1, I think 3.24?

2014-02-14 19:58

Alphabeta

A word of caution with this stock, its share price has increased from RM3 in Apr'13 to around RM6 in early Dec'13 before the 1 for 1 bonus in Dec'13. At current price level, a 10% return per annum should not be an issue unless there is a delay on rolling out the infrastructure works and a slow down in launching of high-rise building works. Its near term growth could be lackluster.

The 2nd quarter ended Dec'13 YTD result showed a slight dropped in after tax profit margin by 2% from 28% to 26% compared to last year. Its YTD revenue growth is 14.5% while profit growth is only 7.7%.

Its current P/E of 9 is low in comparison to other construction counter but this is to be expected as its earning visibility is low due to short contract period of 6 months to a year as compared to normal construction period of 3-4 years.

Though the founder has started to groom his son as his successor, the succession plan of CEO minus 1 level is an unknown. These are key issue to sustain execution capability in future.

2014-02-15 15:37

kcchongnz

One of the biggest foundation projects I have encountered.

PINTARAS JAYA BHD

AWARD OF CONTRACT FOR FOUNDATION WORKS (DIAPHRAGM WALL, PILING AND EXCAVATION)

The Board of Pintaras Jaya Berhad ("PJB") is pleased to announce that the Company's wholly-owned subsidiary, Pintaras Geotechnics Sdn. Bhd. has, on 12th March 2014, received a Commencement Date Notice dated 12th March 2014 from PNB Merdeka Ventures Sdn. Berhad to undertake foundation works for a proposed building at Warisan Merdeka, Kuala Lumpur. The said works are to commence on 17th March 2014 with a completion period of about a year. The contract is valued at RM74 million.

The said contract is expected to contribute positively to PJB Group's future earnings.

2014-03-12 17:17

yfchong

This is in the mark line ;-)

2014-03-12 17:19

kcchongnz

22/3/2014

As on 22 march 2014, Pintaras has secured the jobs below which would contribute to the financial results ended June 30 2014.

Date Amount, m Commencement Period, months
22/04/2013 36 30/04/2013 13
15/04/2013 20 2/05/2013 12
7/10/2013 59 Nov-13 14
19/12/2013 24 Jan-14 12
3/03/2014 24 10/03/2014 6
12/03/2014 74 17/03/2014 12
Total 237

This amount of jobs certainly is the highest for Pintaras so far. Although the contract amount is small when compared to the jobs secured by other midsized construction firm, it is the bottom-line which is more important. Pintaras net profit margin has been consistent at more than 20% for years. It has in fact reached 30% last year, a feat hardly met by any other construction company.

2014-03-22 10:58

Elwin Kai Kai

kcchongnz what do you think about brem， can you give me some advice....earning doesnt seem so good but have many valuable land

2014-03-22 19:51

francis5269

Hi Mr.chong,

1)the 2013 CFFO is 46242?or other amount?

2)may i know how u calculate NI, can give 1 yr example?

3)the net cash per share...i use CASH AND CASH EQUIVALENTS/share... but still cant get the amount...may i know how i can get it?

2014-03-31 01:08

kcchongnz

Posted by francis5269 > Mar 31, 2014 01:08 AM | Report Abuse

Hi Mr.chong,

1)the 2013 CFFO is 46242?or other amount?

2)may i know how u calculate NI, can give 1 yr example?

3)the net cash per share...i use CASH AND CASH EQUIVALENTS/share... but still cant get the amount...may i know how i can get it?

1) Yes, from statement of cash flow from operating activities
2) NI is net income, the bottom line in the income statement. Sometimes I may have excluded one-off item, or income from investment funds. They are dependent on the equity market and hence are unstable. Again valuation, financial interpretation is an art.
3) Read my previous response as below:

francis5269 Hi mr.chong, your excess cash is from the formula "excess cash=total cash - max(0,current liabilities- current asset)". may i know how you classify the "total cash" from? i add up "Short-term deposits","Cash and bank balances", but cant get your amount Excess cash 155459.then i add up other asset also has variance of it... may i know what category should classified in "total cash"?
11/03/2014 22:58
X

kcchongnz francis5269, yes i use the formula mentioned by you. More specifically, it is:

Excess cash = Total cash or cash equivalent- max[0,current liabilities- (current asset-cash or cash equivalent)]

Don't forget that cash also include the 46.6m "available for sales investments" in the non-current asset which is quoted shares.
12/03/2014 04:56
francis5269 Hi

2014-03-31 10:21

francis5269

Hi mr.chong,

i calculate these few days... 2013 NI 41437, and 2012 39152. it show variance with ur figure abv. am i miss other things?

2013
Gross profit 59946
Other operating income 15386
Administrative expenses -3,321
Other operating expenses -4,859
Taxation -14,835
Gain on disposals -8,032
Interest income received -2,848
NI 41437

2012
Gross profit 54302
Other operating income 5891
Administrative expenses -3,276
Other operating expenses -3,088
Taxation -12,967
Interest income received -1,710
NI 39152

2014-04-02 12:23

kcchongnz

francis,
Looking at your computation, why did you net off the "gain on disposal" and "interest income for your NI for 2013?

I said sometimes I net them off when computing operating income, not from net income, as these items are one-time off and not the "real" operating income in the actual sense for my valuation using FCF for the firm.

Most of my valuation methods start from operating income, not net income.

If you don't do that, then you will get the same NI of 52.3m as mine as mentioned in the post.

2014-04-02 12:51

francis5269

hi mr.chong,

ur NI as below,when i check the NI for 2012 & 2013 is 35826 & 52317.

from ur meaning is net profit no deduct "gain on disposal" and "interest income",rite? but how get below your post figure?

Net profit
Year
2,013 2,012
55,438 42,149

2014-04-02 20:34

kcchongnz

If you look at Ptaras annual report, the "profit for the financial year" for 2013 and 2012 is 52317 and 44897 respectively. I ignore those extra-ordinary gain/loss below this line.

So your figure for 2013 is the correct one. Your figure for 2012 of 35,826 you have taken into account of those items which I consider as extra-ordinary, which I always omit in the income statement for a true picture of its financial performance.

My figure for 2013 of 55438 in this post which I just checked is actually the trailing twelve month (TTM) "profit for the financial year" 2014. Maybe i should use the 2013 figure which is 52317, but many people use TTM results too.

What about my 42149 for 2012? I may have excluded some more items which I thought are one-off or non-recurring which I got it from the cash flow statement. Can't remember exact figure and items but I find it is unnecessary to spend time looking for them. After all how many times I have said, valuation is an art. And what is the difference between 42,149 and 44897 when the margin of error in financial interpretation and valuation is a very wide one?

2014-04-03 04:58

francis5269

Thx. mr.chong...bcs i thought i miss out something and i may use same method for another company then may lead me to wrong calculation... i think next time i directly take NI of financial report.Btw, where to find trailing twelve month (TTM)
"profit for the financial year" 2014? in bursa, 2013 annual report?

2014-04-03 22:06

kcchongnz

francis, you could just take the NI from the financial report. But be aware that you should ignore the one-off items such as gain in valuation of property, foreign exchange gain, gain in sales of assets. These items are non-recurring and would not project a true picture of a company's profitability.

You can't get ttm results from annual report. You may get this information in some websites. Somebody told me i could get it from i3 website too and i tried and got it. I am not sure how to get it now from i3.

I like to get it from the quarterly reports which i have to do a lot more work extracting and summarizing from them. However i got a lot more useful information by doing so for my valuation and financial interpretation purposes.

2014-04-04 05:22

kcchongnz

Wow, another award of piling and basement project of 71m, as big as the Merdeka Square! Nowadays, foundation projects are huge.

Must go back and ask Dr Chiu if there is any vacancy for job or not. Ah think about it, I don't think he wants to employ somebody who has left the industry for so long already. But think about it, I got scared seeing the earth and mud each time I am near a construction site.

The table below summarizes the existing jobs for Pintaras Jaya.

Date Amount, m Commencement Period, months
22/04/2013 36 30/04/2013 13
15/04/2013 20 2/05/2013 12
7/10/2013 59 Nov-13 14
19/12/2013 24 Jan-14 12
3/03/2014 24 10/03/2014 6
12/03/2014 74 17/03/2014 12
7/04/2014 71 1/05/2014 16
Total 308

2014-04-07 18:41

francis5269

thx, mr.chong...

2014-04-08 16:42

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