• Upgrade to BUY from Neutral with new MYR1.94 TP from MYR1.91, 16% upside. Pintaras Jaya’s 9MFY23 (Jun) core net loss of MYR1.0m was below our and Street full-year earnings projections of MYR5m and MYR14m. However, it marked its first quarterly core profit of MYR0.9m in 1QFY23 after two quarters of core losses. Moreover, its exposure in Singapore (with c.80% orderbook from there) – may enable the group to benefit from the estimated average annual demand for construction activities of SGD25-32bn from 2024-2027.

• Performance review. Segmental wise, PINT’s construction arm reported a revenue of MYR64.3m (-14% YoY) and LBT of MYR0.5m in 3QFY23 (2QFY23 LBT: MYR3.1m). From 2QFY23 to 3QFY23, it was noticeable that revenue dropped 4% QoQ but GPM rose to 9.8% in 3QFY23 (2QFY23: 3.7%) in light of lower cost of sales. Meanwhile, the manufacturing division (15% of revenue) saw a MYR1.1m PBT in 3QFY23 (2QFY23: MYR0.4m) as tin prices eased from the seven-month high of USD32.5k/tonne seen in late January to current levels of around USD24k/tonne.

• PINT’s outstanding orderbook as at end-3QFY23 stood at MYR282m vs MYR320m from a year ago which translates into a cover ratio of 0.7x. Looking ahead, we expect cost pressures faced from private property development projects (with no cost escalation clauses) in Malaysia secured prior to the Russia-Ukraine crisis to gradually recede as they reach their tail- end. On the other hand, new projects would have priced in the latest normalised building material price trends. Moreover, we take comfort from the value of contracts awarded for residential projects (public and private sector) in Singapore which increased 15% YoY to SGD3.4bn in 1QCY23 as the bulk of PINT’s projects in Singapore came from residential projects. The group’s tenderbook of MYR1.6bn consist mainly of Singapore jobs at c.90% – enabling it to ride on the island-state’s robust construction demand.

• We maintain our FY23F-25F earnings amid the normalisation of building material costs, particularly for Malaysia projects, in addition to higher progress billings in 4QFY23 as more projects move up along the S-curve. Our TP (pegged to an unchanged 0.8x FY24F (Jun) P/BV) rises to MYR1.94 (from MYR1.91) due to a lower 2% ESG discount based on the revised ESG score of 2.9 (from 2.8). In light of the aforementioned factors – we view the stock’s valuation to be undemanding – trading at 0.7x FY24F P/BV (-2SD from its 5-year mean). Further upside would be a faster-than-expected rollout of Changi Airport’s Terminal 5 (expected in early 2024) given PINT’s job for Terminal 4 during 2015-2016. Downside risks: Slower-than-expected job replenishment and stronger competition amongst piling contractors.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 29 May 2023