Last year I did not want to buy Protasco's shares at RM1.40, but now I bought them at RM1.64!

 

When I started to study Protasco last year, its share price was hovering around RM1.40.

 

Apart from the fact that it depends on government for contracts which I don't really like, I think it is still a good company to invest in, as it diversifies its earnings into property & Oil & Gas sector.

 

At that time, I decided that I will only buy Protasco if its share price drops to RM1.20 or below.

 

In the end, it turned out that Protasco's share price advanced 50% from RM1.40 all the way up to RM2.10.

 

I thought that I will never have a chance to be a shareholder in Protasco, just like what I experienced earlier with Boilermech & BJ Auto.

 

 

 

 

However, due to the cancellation of O&G deal, and perhaps disposal of shares by major shareholder & director, Protasco's share price fell all the way down from RM2.10 to current level of around RM1.65.

 

I was aware that its share price was falling but I did not really keep a close eye on it, until one day it just happened by chance that I noticed it has reached its major support line at RM1.65 on 15/8/2014.

 

I have a strong feeling: Is it my second or perhaps last chance to own Protasco?

 

So I bought its shares at RM1.64 on 15/8/2014, at 12:29pm just a few seconds before market afternoon break.

 

Never had I felt so lucky because after the market re-opened 2 hours later, straight away Protasco jumped and closed at RM1.69. It even breached RM1.80 in the next 2 days.

 

However, it has fallen back to my entry level now. Luck is running out? Or third chance to accumulate more?

 

 

 

 

Why I bought Protasco? There are actually multiple reasons.

 

 

1. Growth in property & construction division

 

Protasco launched the first phase of its DeCentrum project in Bangi in the end of year 2012. It's been almost 2 years so I would expect it to contribute more to its top & bottom lines from now on, though the overall GDV is not too high at RM250mil.

 

Just recently in June 2014, Protasco has launched the phase 2 of DeCentrum, which is Unipark condo (2x20 storey towers with 320 units) with GDV of RM225mil. It was reported that 50% were snatched up in the first week. So this should contribute positively to its FY14Q3 result I guess.

This 100-acre RM10bil DeCentrum project is 100% owned by Protasco.

Protasco has purchased 14.4 acres of commercial land in Pasir Gudang. Earlier MIDF reported that it may launch phase 1 with GDV RM800mil next year. However, in anticipation of softening property market next year, Protasco is looking to slow down its launch in the near future.

Besides, Protasco has entered into an MoU on 28/5/14 to joint-venture with Nextnation (Nexgram) to develop a 5.9-acre mixed development in Cyberjaya. Both parties share similar shareholder in Tey Por Yee & Ooi Kock Aun. The MoU will expire in 6 months.

 

For the construction part, the excitement is the RM578.5mil  PPA1M Civil Servants housing project at Putrajaya awarded on 23th Oct last year. It is expected to be completed in 2 years so it might also contribute greatly from the second half of FY14 onward.
 

Meanwhile, the two PR1MA projects worth RM88mil at Manjung & Jelebu have been delayed due to land issue.
 

 

       Phase 2 of DeCentrum - Unipark Condo

 

 

2. Attractive dividend yield

 

Even though at RM1.65, Protasco's PE ratio is not that low, but its dividend yield is certainly excellent at 6%.

 

I think this dividend yield can support its share price above RM1.65. As I expect its bottom line to grow in the next 2 years, this means that dividend paid to shareholders will increase as well, as long as it keeps its generosity in dividend payout at 50-60%.

 

For FY2014, a first interim dividend of 6sen has been paid. If total dividend reaches 12sen, it will be 7.3% yield at RM1.65.

 

 

 

 

3. Strong balance sheet

 

In short, it is in a net cash position. Cash flow from operation in FY13 was very good but it is in the negative territory after the second half of FY14, mainly due to decrease in payables.

This may not sound nice but I find that Protasco usually has negative operating cash flow in mid year, and it will turn positive at year end may be due to the billing nature of its contracts. Protasco never fail to end its financial years with positive operating cash flow since listed in 2003. So I expect it to turn positive by year end.

 

 

4. Failure in O&G venture

 

For me, the inclusion of O&G business will make Protasco complicated and hard to predict. It may need to pump in a lot of money. So it's not the end of the world after the deal fell through, as Protasco will concentrate more on its core businesses.

 

 

5. Falling share price.

 

If Protasco is still trading at RM2.00 or above, I will not consider to buy. However, it fell to a strong support with dividend yield of at least 6%.
 

 

       Protasco @ RM1.65
 

 

Anyway, there are some issues that need to be taken into account.

 

As we all know, a big chunk of Protasco's income comes from road maintenance contracts, which is recurring in nature.

 

However, some of the long-term contracts are expiring soon as shown in the table by MIDF below.

 

 

 

MIDF reported that Protasco is currently negotiating for renewal of road maintenance contracts. MIDF is confident that Protasco will be awarded the renewal contract by the end of 2014. If it fails, then the attractiveness of Protasco will be greatly discounted.

 

The award of building construction is on negotiation basis, and the contracts may not come regularly. So this might mean fluctuation in financial contribution from construction division.

 

So far the contracts awarded to its construction division this year include:

• 21/1/14 - Projek Perumahan Mampu Milik 1Malaysia in Manjung & Jelebu, in 18 months from date of sites possession, RM88.1mil
• 2/6/14 - Federal road zone 2A Sarawak, in 12 months, RM21mil