• Keep BUY and MYR2.95 TP, 31% upside with c.4% FY23F (Jun) yield. FY22 (Jun) core profit of MYR31.3m (-46% YoY) is below expectations, at 92% and 85% of our and Street full-year projections. The negative deviation was due to a higher-than-expected cost of sales (+36% YoY). In comparison with other piling companies under our coverage, Pintaras recorded the largest profit in 2QCY22, at MYR2.6m. Rerating catalysts include the possibility of clinching a sizeable subcontract for Mass Rapid Transit 3 (MRT3) works, as the group was involved in MRT1.

• Construction wing reported a higher revenue of MYR401.8m (+20% YoY) in FY22, primarily due to increased construction activities as some of the on-going projects reached the optimal construction stage. However, segmental PBT dropped by 13% YoY in FY22, due to downward adjustments on projected profit for some on-going projects as a result of higher construction costs. Nonetheless, this unit is set to benefit from Singapore’s construction sector, whereby the economic output of the sector expanded 3.3% YoY in 2QCY22, driven by the rise in public and private construction output. About 80% of the group’s MYR240m orderbook comes from Singapore, while its tenderbook size is c.MYR1.5bn Therefore, we opine that Pintaras 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 which have a variation on price clauses.

• Manufacturing sales continued to grow. The division recorded a PBT of MYR7.5m (+17% YoY) in FY22 due to higher sales volumes and pricing. With that, the segment’s PBT margin remained strong, at 18% for the quarter. Looking ahead, metal container operations are expected to benefit from the stable domestic demand from major customers such as Nippon Paint, which expects its revenue to grow by c.10% YoY in 2022.

• We maintain our earnings estimates as we believe our assumptions are fair for now, and introduce our FY25F (Jun) earnings with an assumed job replenishment target of MYR400m. For the longer term, we think that any further impact of material cost hikes on our latest estimates should be limited, due to the aforementioned variation of price clauses in Singapore government contracts – which justifies our BUY call. All in, our TP is unchanged at MYR2.95, pegged to 11x P/E of FY23F EPS and with a 4% ESG discount applied, as per our in-house ESG scoring methodology. 11x FY23F P/E is at a 10% discount to the KLCON index’s forward P/E. This, incidentally, is also at the lower end of the P/E range of Singaporean piling peers (6x-24x) – to reflect risks from Malaysia and also competition in Singapore’s smaller market. Key downside risks include failure in securing new contracts and project delays.

Source: RHB Research - 30 Aug 2022