- To continue growing. Protasco achieved a net profit CAGR of 15.2% over the past two years (2011-2013). The earnings growth was mainly driven by higher concessions revenue following the tariff hike for its road maintenance concessions in 2012. In FY13, the Group's net profit grew by 30% to RM48.6m. Protasco expects the growth momentum to continue this year and beyond. In fact, the management is targeting minimum 15% net profit growth in FY14. We believe the target is achievable judging from the Group's healthy fundamentals, namely orderbook of RM1.8b (for both road maintenance concessions and construction) and unbilled property sales of RM180m.

- Concessions to be renewed this year. One of the five road maintenance concessions, which is also the biggest concession for Protasco (the federal road maintenance of 7,104 km in Selangor, Pahang, Kelantan and Terengganu) is expiring soon in 2016. Management is confident that the concession will be renewed by this year as they are the only bidder for the concession extension so far. This division contributes at least RM25m p.a. to bottomline.

- Construction segment rises from the “ashes”. As the Group had not secured any projects since 2010, Protasco has turned around its construction segment by actively securing several jobs in 2013. Protasco’s outstanding orderbook currently stands at RM706m (exc. road maintenance). As for this year, the management is targeting RM1.0b orderbook and it expects to secure government property related projects (i.e. PR1MA Housing).

- To launch another RM200m GDV property this year. Protasco’s property flagship project, “De Centrum” has a total GDV of about RM10b. De Centrum sits on 100-acre of land in a strategic location besides the Silk Highway and sandwhiched between Kajang, Bangi, Putrajaya and Seri Kembangan. Early last year, it launched the project’s Phase 1 which is worth RM280m in GDV comprising of apartments, SoHo, shop lots, and retail malls. It was well-received by the public with an average take up rate of more than 80%. The project’s Phase 2A that consists 2 blocks of university apartment will be launched in the middle of this year. Currently, its unbilled sales

stands at RM180m, which would last the Company another 2 years. We reckon this segment is going to be a significant contributor for the Group starting next year with more launches coming up. Moreover, Protasco has another piece of land in Pasir Gudang and plans to launch it by next year with GDV of RM505m.

- O&G venture to support future earnings growth. Protasco has ventured into the O&G segment (exploration and production) earlier this year by buying a 63% stake in PT Anglo Slavic Indonesia (ASI). Total cost of investment (including advance of USD5m) for Protasco’s venture into this segment is USD27m (c.RM86.4m). Kuala Simpang Timur (KST) has about 30 onshore wells and it is believed that the oilfield has about 14.2m barrels of oil reserves. More importantly, under the SPA also, there is a profit guarantee of USD22m for the next four years. We believe this division will further support Protasco’s future earnings growth going forward.

- Compelling growth story, fairly valued at RM2.25. We value Protasco at RM2.25 based on sum-of-parts (SoP)-derived valuation. The target price of RM2.25 implies Fwd. PER of 12.0x, which we think it is fair due to its compelling growth story in growing sectors such as construction and O&G. The FV of RM2.25 would provide upside of 18.4% from current price.

Source: Kenanga