• Downgrade to NEUTRAL from Buy, new MYR2.09 TP from MYR2.63, 2% upside with c.5% FY23F (Jun) yield. Pintaras Jaya’s 1HFY23 (Jun) core net loss of MYR1.9m (-107% YoY) was below our and Street full-year projections of MYR39m and MYR36m. The negative deviation was due to slower-than expected progress billings during the quarter. Given the lack of major catalysts aside from Mass Rapid Transit 3 (MRT3) which may see further delays – the stock looks fairly valued. It is trading at 9x FY24F P/E, which is at its 5-year historical mean.

• Performance review. PINT’s construction arm reported a revenue of MYR66.8m (-46% YoY) and an LBIT of MYR3.1m in 2QFY23 (2QFY22 EBIT: MYR17.7m). This was primarily due to a decreased volume of construction works as a result of fewer projects secured, coupled with low productivity from on-going projects amidst labour shortages in Malaysia – which outweighed the profit from the Singapore operations. Meanwhile, the manufacturing division recorded a PBT of MYR0.4m (-82% YoY) in 2QFY23 due to higher material and material costs, on top of a decrease in sales volumes. With that, the segment’s PBT margin contracted to 3.7% in 2QFY23 from 19% in 2QFY22.

• Prospects. PINT’s outstanding orderbook as at end-Dec 2022 stood at MYR275m vs MYR320m a year ago – providing around one year of earnings visibility. It managed to bring in all the 40 foreign workers under its approved quota from previous years, and has applied for additional workers under the Foreign Workers Employment Relaxation Plan. However, PINT also relies heavily on subcontracted labour – this is the area that is facing delays in receiving foreign workers. This has led to an overall drop in productivity levels for its Malaysia operations. Even if the labour shortage pressures could be lessened in the coming quarters, this may be offset by higher labour and material costs even as competition heats up. As such, we expect operations in Malaysia to drag the Singapore business, even though about 20% of its orderbook is related to jobs in Malaysia.

• We reduce FY23-25 earnings estimates by >20% as we dial down our construction margin assumptions to reflect higher operating costs. We also tone down job replenishment assumptions by MYR50m for FY23-25F. Post earnings revision, we arrive at a new TP of MY2.09 (from MYR2.63) pegged to an unchanged target P/E of 9.5x after ascribing a 4% ESG discount based our in-house ESG scoring methodology. The target P/E of 9.5x is: i) Near the midpoint of the P/E range of Singaporean piling peers of 6-15x, and ii) is within the 8-10x target P/E range for most of the small-to-mid cap contractors under our coverage. Rerating catalysts include securing new jobs related to the Changi Airport’s Terminal 5 development. Note that PINT was previously involved in Changi Airport’s Terminal 4 in 2015-2016.

• Key downside risks include a failure to win new contracts and project delays. The inverse would constitute upside risks.

Source: RHB Research - 27 Feb 2023