COULD construction and property player Protasco Bhd be a stock worth watching now that its boardroom tussle and one-off impairments have come to a close?
The company seems to have kitchen-sinked all of its skeletons in the fourth quarter of 2018, when it took a RM41.6mil hit to its bottom line on the back of cost overruns, provisions, impairments and retrenchment costs.
Following this write off, as if starting on a clean slate, Protasco posted a first-quarter net profit of RM1.23mil from a previous net loss of RM2.14mil.
Today, at its share price of 25.5 sen, the stock has retraced some 50% over the last 12 months.
Protasco’s earnings are supported by an orderbook of RM707mil and a decent dividend yield ranging from 5.6 sen to 6.8 sen for the next two years. The company is expected to pay out dividends of 1.4 sen and 1.7 sen this year and next.
Should Protasco achieve CIMB Research’s estimated 2019 net profit of RM12.24mil, this would give the stock a price/earnings ratio of some 12 times.
Protasco, which started as a “road doctor”, was listed on Bursa Malaysia in 2003, and was one of the few integrated specialists in road construction, rehabilitiation and maintenance.
It maintains over 27,000km of federal, state and rural roads in Malaysia through two federal concessions and four long-term contracts up to 2028.
It has also been in the provision of private higher education over the last 20 years, where it owns Infrastructure University of Kuala Lumpur (IUKL).
Needless to say, Protasco was viewed as a decent diversified company with considerable ability to garner contracts.
All that changed when Tey Por Yee emerged as the company’s substantial shareholder in Nov 2012 and became non-executive director.
Tey was involved in a Protasco boardroom tussle, which saw him together with director Ooi Kock Aun voted out of the board at an EGM in 2014. At that time, Tey owned about 17% stake in Protasco.
His removal from the board came after allegations of a questionable investment in an Indonesian oil and gas company.
In January 2016, Tey was charged with cheating and perjury involving RM68mil over Protasco’s failed US$22mil (RM68.3mil) acquisition of Indonesia’s oil and gas firm PT Anglo Slavic.
In January this year, Tey and Ooi were acquitted by the Shah Alam High Court.
Since that fiasco, Protasco has attempted to repair its branding and grow its earnings.
Right now, Protasco has an orderbook of RM707mil, of which 93% consists of the 1Malaysia Civil Servants Housing Programme (PPA1M) project.
One issue capping the stock could be its earnings visibility, moving forward.
Using its first quarter results to March 31, 2019 as a guide, road maintenance is still a core contributor to earnings. Nonetheless, its contribution dropped some 12% from the same period of the previous year. The second largest contributor to earnings is the PPA1M project while there was zero contribution from the property segment, as there were no new launches.
For 2019, Protasco has announced that the maintenance segment is expected to be the main revenue contributor to the group, followed by the PPA1M phase 2 and drainage and irrigation projects.
Protasco began the construction of the fourth phase of PPA1M late last year.
The project is a joint venture between its wholly owned subsidiary, Protasco Development Sdn Bhd, which holds a 51% stake, and Kop Mantap, a wholly-owned subsidiary of Koperasi Polis Diraja Malaysia Bhd, which holds the remaining 49%.
The joint venture secured the project in December 2017. Protasco completed the first phase of PPA1M Putrajaya in April 2017.
Moving forward, though, it looks as if Protasco will be banking more on property projects to drive its earnings.
Earlier this week, shareholders approved the company’s property joint venture with related company Penmaland Sdn Bhd.
Protasco is putting its hopes on a RM371.6mil proposed property development in Tampin, Negri Sembilan.
Its appointed valuer, Raine & Horne, has projected that the Tampin and Alor Gajah districts would have a total housing requirement of 72,787 units by 2020, against an existing supply of 53,573 units as at the third quarter of 2018.
More than 50% of the proposed development will be affordable housing priced not more than RM400,000 per unit. In total, the project comprises 703 terraced houses, 32 semi-detached houses, 71 bungalows, three homestead units and a commercial lot.
“I believe this is the right opportunity for Protasco to build up our property development segment, grow our land bank and expand our expertise into a mass housing project outside of Klang Valley,” said executive vice-chairman and group managing director Datuk Seri Chong Ket Pen after Protasco’s 18th AGM.
Protasco also announced a dividend of 0.6 sen per share on May 28 for its shareholders.
“We are committed to delivering value to our shareholders. Protasco is currently on a steady path to recovery and we are working hard to return to full profitability. We hope this project will contribute to the continued improvement of our financial performance,” Chong concluded.
CIMB Research is upgrading Protasco from a “reduce” to “hold” with a higher target price of 24 sen, based on a higher financial year 2019 (FY19) price-to-book value (P/BV) multiple of 0.4 times, implying a lower 55% discount to its 5-year average P/BV of 0.6 times previously.
This is to reflect the improvement in earnings outlook, but is mitigated by the sustained weak visibility in job flows and weak property sales.
“Its share price is supported by FY19 and FY20 dividend yields of 5.6% to 6.8%. Upside risk is a recovery in contract wins while downside risks are bigger losses for the property development and education segments,” said CIMB Research .
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