1QFY16 (Jun) results missed our forecast. We cut our FY16-18 earnings forecasts by 14%, 14% and 9% respectively. However, we maintain BUY with a lowered MYR3.96 TP (MYR4.60, 13% upside). It is well-positioned to capitalise on the strong prospects of the piling segment, backed by mega infrastructure projects and a structural shift towards high-rise developments.

A weak 1QFY16. Pintaras Jaya’s 1QFY16 core net profit of MYR5.7m came in below our expectations at only 11% of our full-year forecast (consensus estimates are not available). We believe the key variances against our forecast came from: i) a lower topline on the back of a low rate of orderbook replenishment, and ii) lower margins on a weak overhead absorption of a much reduced turnover.

Growing orderbook. Pintaras Jaya’s outstanding orderbook should gradually rise from MYR70m at present, backed by a tenderbook of MYR800m. It is mindful that the excess supply situation in the piling market may persist over the next six months with the completion of Mass Rapid Transit (MRT) 1 and Light Rail Transit (LRT) 2, while MRT2 and LRT3 are not expected to begin construction until late 1H16 at the earliest.

Forecasts. We cut our FY16-18 earnings forecasts by 14%, 14% and 9% respectively, as we now project FY16 piling turnover to decline by about 24% vis-à-vis a 2% contraction we previously assumed.

Risks. These include: i) its ability to constantly secure new jobs, and ii) an escalation in input costs.

Maintain BUY. The prospects for the piling segment are strong, backed by: i) mega infrastructure project including MRT2 and LRT3, and ii) a structural shift towards high-rise developments (that require more extensive piling works) due to land scarcity in prime locations. Pintaras Jaya’s key strengths are: i) its full range of piling machines, tools and accessories, ii) its ability to improvise piling solutions to diverse ground conditions given its experience spanning more than two-and-a-half decades in the local piling sector, and iii) its ability to secure cash discounts for key inputs, given its strong balance sheet. We cut our TP by 14% to MYR3.96 based on 13x revised 2016F EPS of 30.5 sen (35.4 sen previously), in line with our 1-year forward target P/E of 10-14x for small and mid-cap construction stocks.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Pintaras Jaya is a piling specialist. Leveraging on its core competence in piling, it also extends the range of services it offers to the provision of foundation systems, earth retaining systems, substructures, basements and earthworks, and to a lesser extent, the more general building and civil engineering works. It has a small but profitable manufacturing outfit that produces industrial metal containers for the paint, chemical, lacquer, lubricant, confectionery and food industries.

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Source: RHB Research - 23 Nov 2015