We  maintain our  BUY recommendation, forecasts  and MYR1.80  FV,  as we  expect  Protasco’s  upcoming  FY13  results  to  meet  our  forecast.Protasco  is  good  small-cap  proxy  to  public  infrastructure  spending, particularly  road  maintenance  and  public  housing.  We  also  like  the company for its MYR10bn De Centrum integrated development in Bangi. The stock’s dividend yield is attractive at about 7%.

• Protasco  to  deliver.    We  expect  Protasco’s  FY13  results,  due  next week,  to  come  in  at  MYR42-44m  at  the  net  profit  level,  which  will  be within our forecast of MYR42.2m (there are no consensus estimates). At MYR42-44m, the company’s  FY13 net profit will have  risen  12-17% y-oy,  backed  largely  by:  i)  strong  jobs  flow  at  its  road  maintenance  and engineering services divisions on the back of  the  election year in 2013, and  ii)  maiden  contribution  from  its  De  Centrum  integrated  property project,  comprising  largely  progress  billings  from  54  shop  units  (fully sold) with a total GDV of MYR42m.
• FY14 growth  rate  to  double.  We project Protasco’s  earnings growth to double  to  36%  in  FY14,  driven  largely  by:  i)  contributions  from  two recently secured public housing projects with a combined contract value of MYR587m  (see Figure 1 for  its  outstanding construction orderbook), and ii) a first full-year contribution from De Centrum.
• Risks.  These  include: i) new construction  jobs secured in FY14 falling short of  our  MYR200m  estimate  (YTD Protasco has secured MYR88m), ii) escalating input costs, and iii) poor demand for De Centrum.
• Maintain BUY.  Protasco is good small-cap proxy to public infrastructure spending, particularly road maintenance and public housing. We also like the company’s  MYR10bn  De Centrum  integrated  property project, which involves  the  redevelopment  of  the  100-acre  Infrastructure  University Kuala Lumpur (IUKL) land in Bangi that it  acquired at a very low price. A strong balance sheet (with a net cash of MYR62.7m or 19 sen per share) and highly cash-generating road maintenance concessions will underpin a  10  sen dividend  based on our forecast,  which  translates  into a  6.9% yield.  We keep our FV unchanged at  MYR1.80  based on  SOP,  valuing its IUKL land at market price, concessions by DCF, and construction and other businesses at 10x FY14 earnings (see Figure 2).

Financial Exhibits

SWOT Analysis

Company Profile
Protasco’s core business is the maintenance of federal and state roads under five concessions, which contributes about 60-70% of total profits.  The  remaining  profits  come  from  construction,  engineering  services,  property  development,  trading  &  manufacturing  and education.  Protasco  has  identified  property  development  and  construction  as  its  key  growth  drivers  –  the  former  backed  by  the redevelopment of its 100-acre IUKL land in Bangi and the latter an expected strong pipeline of new public construction jobs.

Recommendation Chart

Source: RHB