• Keep BUY and MYR3.24 TP, 23% upside and c.6% FY22F (Jun) yield. Pintaras is expected to ride on the recovery of Singapore’s construction industry given its sizeable footprint there (80% of revenue). As such, the group is not highly exposed to the murky outlook of mega projects in Malaysia. Having a net cash position as at 31 Dec 2021 will also enable the group to take on larger jobs going forward. Valuation remains attractive – trading at a c.35% discount from its 3-year average.

• Pintaras’ latest construction orderbook stands at c.MYR320m (Singapore: 80%, Malaysia: 20%), translating into an orderbook/revenue cover ratio of <1.0x – lower than the average of 2.0x amongst piling companies under our coverage. However, this is not a point of concern since most of its contract awards have tenures shorter than 12 months – leading to fast completion of projects. We also take comfort from its average replenishment rate of c.MYR400m in the past three financial years. Looking ahead, we opine that Pintaras will be well positioned to benefit from the pickup in Singapore’s construction sector. Singapore’s Building and Construction Authority (BCA) has projected construction demand to range between SGD25-32bn from 2023-2026 – back to pre-pandemic levels. This will be supported by the strong pipeline of public housing projects, as well as healthcare development and infrastructure work, including the Cross Island MRT Line for which it has previous experience in.

• Expecting stable demand for metal containers. Operating profit of its manufacturing division is estimated to grow steadily to the tune of c.4% in the next two financial years. This is backed by the robust demand from major customers such as Japanese paint product manufacturer, Nippon Paint, which forecasts a 5-10% revenue growth in 2022 in Asia (excluding China and Japan). In terms of cost management, the group is able to cope with rising raw material prices compared to its construction division as it is able to periodically revise the pricing of its products based on the prevailing trends.

• Earnings and valuation. We make no changes to our FY22F-FY24F earnings. Our TP of MYR3.24 is also kept unchanged as we still peg a target P/E of 9x to our unchanged FY23F EPS followed by a 4% ESG discount based on our in-house ESG scoring methodology. The target valuation P/E of 9x is a 30% discount to the KLCON Index’s forward P/E of 13x, flagging the risks of burgeoning global raw material costs. Moreover, we deem this target valuation to be fair as Pintaras has a relatively smaller market capitalisation of MYR438m. Downside risks include failure to secure new contracts and more intense competition among piling contractors.

Source: RHB Research - 18 Apr 2022