Strong share price performance. Pintaras Jaya Bhd (Pintaras)’s share price has climbed by 32% since our previous On Our Radar report on 15 August 2013. It has exceeded our fair value of RM3.40 (adjusted for 1:1 bonus exercise). After a slew of job wins (FY14: RM284m vs FY13: RM155.1m) coupled with a competitor's recent IPO (i.e. Econpile), we have revisited Pintaras and view the counter as still relatively cheap as compared to recently-listed peer, Econpile. Pintaras is trading at fwd-PER of 11.0x, a 12% discount to Econpile’s current valuation despite having a strong cash pile (69 sen/share as at 3QFY14) and superior margin (Pintaras FY13 net margin of 30% vs Econpile’s 7%).

Strongest orderbook this year. As of now, Pintaras’ outstanding orderbook stands at RM250m after it reached an all-time high of about RM300m two months ago. In fact, it has exceeded our initial new orderbook forecast of only RM100m in FY14. The orderbook will provide earnings visibility to the group for the next 12-15 months. To recap, Pintaras secured RM284m worth of new contracts in FY14 (FYE: June) which are mainly from property projects.

Current tenderbook worth RM2.0-RM3.0b. Management also mentioned that this is one of the highest tenderbook in its history. This tells us that there is still strong demand for piling contractors’ services.

Moreover, medium-to-long-term prospects of piling industry are still bright with more infrastructure and property-related projects in the pipeline. Amongst the projects that we think will benefit Pintaras are: Bukit Bintang City Centre (BBCC), Tun Razak Exchange (TRX), West Coast Expressway, power plant’s project 3A, West Coast Expressway (WCE), KVMRT, and Kwasa Damansara’s MX1 project, RAPID.

Earnings to grow significantly in FY15. As the orderbook reached its all-time high, we forecast the group’s revenue and net profit to grow significantly by 24% and 28% in FY15 as compared to that of Econpile’s earnings growth forecast of 7% and 7.8%, respectively. Pintaras’ earnings estimates are based on the assumption of: (i) orderbook burn rate of 75%, (iii) new orderbook of RM200m per annum, and (iii) net margin of 26%.

DPR to stay at 40% which offers decent 3.6% yield. As management indicated its intention to maintain its dividend payout ratio of 40%, based on our FY15 earnings estimates, we calculate Pintaras will likely pay 15 sen DPS next year. This translates into a decent 3.6% yield which is still higher than that of its construction peer’s dividend yield of 2- 3%.

Raise FV to RM4.78 from RM3.40, TRADING BUY. The stock is currently trading at fwd-PER of 11x which we think is still undervalued compared to Econpile’s Fwd-PER of 12.5x. Despite Econpile having a bigger market share than Pintaras, the latter has higher net margin and stronger net cash position (69 sen /share). Hence, we think Pintaras should at least be valued on par with its peer. Applying fwd-PER of 12.5x on FY15 EPS, Pintaras is fairly valued at RM4.78.

Source: Kenanga