Qualitative analysis of Pintaras Jaya

“You can’t make a good deal with a bad person”: Warren Buffet

Previously we have been emphasizing that Pintaras is a great company with the quantitative analysis of its financial performance as shown in the appended link below:

http://klse.i3investor.com/blogs/kcchongnz/46408.jsp

However, we cannot deny that the qualitative attributes of a company are also very important. Here we will endeavour to carry out a qualitative analysis of Pintaras.

The business

Pintaras is a smallish construction company with its principal activities in investment holding and undertaking of piling contracts, retaining structures, slope stabilization, civil engineering and building construction works, and a lesser scale in metal can manufacture works. The company was formed by its present Chairman cum Managing director, Dr Chiu Hong Keong, a civil and geotechnical engineer who started his career in 1982 with Pilecon Engineering and later worked for Ho Hop Construction for a few years. Pintaras went public in 1994.

The Industry

Construction is a dog eats dog industry with intense competitions. Foundation engineering and construction is a field which is littered with loads of engineering design and construction implementation, contractual and bad debts problems. In order to strive, besides strong financial backing and the capability to carry out works, one must also has the strong political connections, particularly with the government as it is the biggest supplier of construction contracts. Construction players must also have good and strong relationship with the developers. One would notice few construction companies who do not possess the above have survived.

What makes Pintaras different? In other words, what moat does Pintaras possess to survive and prosper in this tough industry?

Business model and competitive advantage

One thing good about Pintaras is that it doesn’t have to rely on the political connections and government jobs to strive and survive in the market place. The strength of Pintaras lays its niche market in the complex foundation engineering works and hence the high margin it commands. It is able to provide economic design and construct heavy foundation and retaining structure works within the short time frame required for the major players in the property sector in Malaysia. Pintaras has extensive specialized plant and equipment to carry out the project in house with concerted personal involvement of the skilful management team. As far as I know, there is no other public listed company having the same technical and financial clout as Pintaras in this niche market. With its good and personal connection with the developers and the Engineering professional bodies, the management is able to cherry pick good and profitable projects with high margins coupled with fewer risks.  As the foundation is the first to be constructed before the superstructure, the contractors involved generally lower risk of non-payment by the developer. All these not only enable Pintaras to survive but strive in this industry.

Business outlook

With the continuation of the LRT extension projects and the commencement of more MRT projects, the construction industry remains robust with abundance of construction works for some time to come. These projects also provide catalysts for many more property developments centred around these areas with many new property development launches. Furthermore, many mega construction and infrastructure projects, all part of the Government Economic Transformation Programme have been proposed and are likely to continue. Hence Pintaras as a leading foundation player in Malaysia will be busy for at least a number of years to come.

Management

Dr Chiu Hong Keong, the chairman cum managing director provides the active leadership for the company. The board of directors is made up of another executive director, Mr Khoo Keow Pin,  who is the founding member of Pintaras and is also highly qualified civil engineer specialized in geotechnical engineering and has extensive working experience in the consulting and construction environments. The other two executive directors are Dr Chiu’s wife and his son.  The four executive directors are related to each other and hence Pintaras can be construed as a tightly controlled family business. There are three independent directors who are not related to the executive directors.

The major shareholders own more than 50% of the total shares of 160m of the company. The strong insider ownership ensures the proper alignment of the interest of the outside shareholders and the management and hence minimizes the agency problem. Total executive compensation in 2013 made up of only RM2.33 m, or just 1.3% (<<3%) of revenue in the year. The directors did not overpay themselves as they already own a major stake in the company and there is enough incentive for them to operate the business to maximize shareholder value. There are no apparent unfair related party transactions too.

The management is also appears to be willing to share the fruits of the success with the outside shareholders. This is evidenced from the dividend payment which increases from 12 sen 5 years ago to more than double to 25 sen per share for the last financial year. A one-for-one bonus was also carried out end of year 2012.

The continuous success of Pintaras is highly dependent on Dr. Chiu. However, he is still considered young at less than 60 years old. He appears to be grooming his son as a succession plan.

Also appended below is a link in Chinese regarding the author’s view on Pintaras.

http://klse.i3investor.com/blogs/treasures/34735.jsp

KC Chong (1.12 am on 17/2/14)