A Review of Pintaras financial performance for fiscal year ended 30 June 2014

“How long should you hold the stock of a great company?”

“Our favorite holding period is forever.” Warren Buffett

Financial results ended 30^th June 2014

Pintaras Jaya just announced its 2014 annual results ended 30^th June 2014. Its 4^th quarter shows an increase in revenue and net profit before tax (PBT) by 22% and 28% to 61.7m and 25.5m respectively from the corresponding quarter the previous year. Thanks to the buoyant construction industry. It announced a final dividend of 9 sen a share, giving a total of 15 sen for the year, another increase of 20% compared with the previous year.

For the twelve months ended 30 June 2014, revenue and PBT increased by 17% and 6% to 201.9m and 71.2m respectively compared to last year. Figure 1 below shows the unabated growth in Pintaras net profit for the last 8 years.

Margins and efficiencies

From Table 1 in the Appendix, we could see the gross profit and operating profit increase in tandem with the increase in revenue. This signifies the high growth in its revenue has not compromised its profit margins as shown in Table 2 in the Appendix.

Table 2 shows that Pintaras gross margin and operating margin remains very high at 35% and 32% respectively. Net profit margin reduced a little compared with last year but still remain very high at 27%. This was due to the reduction in its gains from its financial assets. Can someone show me any other construction company having these margins?

Also as shown in Table 2, the return on equity remains very high at 19% despite its huge amount of cash of 95 sen a share in its balance sheet with zero borrowings. Return on invested capital, which is a better metric of measuring efficiency, also remains very high at 30%. Figure 2 below shows the trend of its ROE and ROIC.

With this type of efficiency, it is no doubt Pintaras has a moat in its niche foundation construction. Can someone shows me how its competitor can get even close to it? Econpiles anyone? What kind of return if you have invested in Pintaras say five years ago?

Return of investment

Pintaras unlocked its value when it declared a one for one bonus about a year ago. Since then its share price has risen from an adjusted price of about RM2.70 to RM4.54 now, or a return of 68%. Figure 3 below shows the return of Pintaras compared with the broad index for the last 5 years. What do you see?

The broad market in Bursa returned about 60% the last 5 years, whereas investing in Pintaras share returned a whopping 500% in the same period as shown!

Figure 3: Comparison of return of Pintaras and KLSE for the last 5 years

Market Valuation

Yes, the market has given a higher valuation for Pintaras as shown in Table 3 in the Appendix. At RM4.54, Pintaras share price is at all time high now. In most circumstances, share price tends to mean reverting. It cannot go up and up and defies gravity, especially in the short term. Its PE ratio is 13.4 and enterprise value (EV) is 8.7 times ebit compared to 8.3 and 5.0 respectively a year ago. The earnings yield (ebit/EV) of Pintaras is 12%.

Is a PE ratio of 13.4 and EV 8.7 times ebit a high valuation for a company with a net profit margin of about 30%, ROIC of 30%, cash return (free cash flow/invested capital) of more than 20%, consistent increasing dividend, a totally debt free company, and clear earnings visibility, expensive?

No, it is not in my dictionary.

K C Chong on the eve of National Day

(30 August 2014)

Appendix

Table 1: Financial performance of Pintaras

Note: Investment in financial assets and cash is excluded from operating income

Table 2: operating performance of Pintaras