• BUY, new MYR2.95 TP from MYR3.24, 18% upside with c.6% FY22F (Jun) yield. Pintaras’ 9MFY22 core earnings of MYR28m (-28.4% YoY) missed expectations, making up only 47% and 65% of our and Street full- year projections. The negative deviation was due to the higher cost of sales (+33% YoY) and lower other operating income (-70% YoY). Note that PINT is the only piling company under our coverage that recorded a profit. Rerating catalysts include the possibility of clinching a sizeable subcontract for Mass Rapid Transit 3 (MRT3) works, as it was involved in MRT1.

• Construction wing reported a lower revenue of MYR74.8m (-16.4% YoY) for 3QFY22 due to lesser construction activities, as several projects reached completion. In terms of PBT, the construction segment saw a 96% YoY drop in the quarter, due to downward adjustments on the projected profit for on-going projects in Malaysia as a result of high material costs. Nonetheless, the construction segment is set to benefit from recently awarded jobs in Singapore that are expected to contribute to group numbers ahead. Recall that c.80% of the group’s MYR330m orderbook comes from Singapore. Therefore, we opine that PINT could benefit in the long run from Singapore’s construction demand, which is projected to reach SGD25-32bn pa over 2023-2026, according to Singapore’s Building and Construction Authority (BCA). Moreover, the majority of contracts in Singapore are government projects with variable price clauses. As such, this could mitigate the uncertainty from Malaysia’s construction sector.

• Manufacturing sales continued to grow. The division recorded PBT of MYR11.9m (+21.6% YoY) in 3QFY22 due to higher sales volumes and pricing. With that, its PBT margin remained strong at 21.1% in the quarter. Looking ahead, metal container operations should benefit from stable domestic demand from major customers such as Nippon Paint, which forecasts a 5-10% revenue growth in 2022. Also, this unit is able to gradually pass on some of these additional costs to customers.

• We slash FY22-23F earnings by 42%, 25% and 11% as we pencil in more conservative margin assumptions in relation to Malaysian contracts, and trim other operating income estimates. In the longer term, though, any material cost hikes should have a limited effect on our latest projections, due to the aforementioned variation of price clauses in Singapore government contracts – which justifies our BUY call. Our new TP of MYR2.95 is pegged to 11x P/E on FY23F EPS, with a 4% ESG discount based, on our in-house ESG scoring methodology. 11x P/E is at a 15% discount to the KLCON index’s forward P/E, which is also on the lower end of the range of its Singaporean piling peers’ P/Es (9x-24x), to reflect; i) Risks from Malaysia; and also ii) competition in Singapore’s smaller market. Key downside risks include a failure to secure new contracts and project delays.

Source: RHB Research - 30 May 2022