News

• Awarded PPA1M job. Protasco announced that it has been awarded a contract to construct 1,681 units of apartments in Putrajaya under the PPA1M housing scheme. The job has a GDV of RM442.7m and will be undertaken jointly by Protasco (51%) and the Royal Malaysian Police Cooperation (49%).

Comments

• 3 rd PPA1M contract award. This is Protasco’s 3 rd housing job under the PPA1M scheme. It previously undertook Phase 1 (completed) and 2 (ongoing) worth RM600m and RM301m, respectively. Apart from that, it also holds a Letter of Intent (LOI) for Phase 3 (RM120m).

• Similar structure. Although the contract is property related in nature, Protasco will be booking it under construction revenue given the relatively high and certain take up rate for PPA1M projects. We understand that the structure will be similar to its previous 2 PPA1M projects. Payment for the PPA1M projects undertaken by Protasco will be based on (i) 25% from the government facility fund in 2 payments at the 50% and 100% completion milestone; and (ii) 75% from the purchasers of the property. For the latter, payment should not be an issue given strong take up due to its pricing below market value and loans provided by the government for eligible purchasers.

• Job wins coming in. With this job in the bag (adjusted for its 51% share), Protasco has managed to secure RM348m worth of construction jobs YTD (FY16: RM126m). Construction orderbook is estimated to stand at RM756m (2.5x revenue cover).

Risks

• Cost overruns for some of its existing projects.

Forecasts

• While YTD job wins of RM348m has exceeded our full year target of RM250m, we are keeping our forecast intact for now given the weak earnings shown in its recent 3Q17 results. The results were plagued by a combination of cost overruns for one of its ongoing contracts and almost non existent property sales for the year.

Rating

Maintain HOLD, TP: RM1.14

• We like Protasco for the defensive qualities of its maintenance business, we feel this may be insufficient to significantly cushion the downside from its cyclical construction and property segments.

Valuation

• Our TP of RM1.14 is based on 12x FY18 earnings.

Source: Hong Leong Investment Bank Research - 28 Dec 2017