Protasco sees recurring income from road maintenance concessions

by **Cals** Wed 19 Mar 2014, 16:35

Business & Markets 2014

Written by MIDF Research

Wednesday, 19 March 2014 10:45

Protasco Bhd
(March 18, RM1.74)
Initiate buy with target price of RM2.90: Protasco was founded in 1991 by Datuk Hasnur Rabiain Ismail and present group managing director Datuk Seri Chong Ket Pen. The group’s key clients include Projek Penyelenggaraan Lebuhraya Bhd and the Public Works Department.

Protasco is principally involved in six businesses — construction, maintenance, property, development, engineering and consultancy services, education, and trading and manufacturing. The group’s core earnings are derived from the recurring income from road maintenance concessions for federal and state roads in Malaysia.

Protasco’s revenue grew at a solid six-year compound annual growth rate (CAGR) of 9.1%, nearly hitting the RM1 billion mark in 2013. Profit after tax and non-controlling interest continue to show stable growth, registering a six-year CAGR of 11%.

Going forward, the group’s earnings will be derived from: (i) strong construction jobs in the pipeline; (ii) continuation of maintenance concession earnings; (iii) integrated flagship developments on a 100-acre (40.5ha) tract in Bangi and 14.4-acre tract in Pasir Gudang, Johor; (iv) profit guarantee from oil and gas business; and (v) healthy balance sheet.

Downside risks to our target price include: (i) slowdown in property market; (ii) scaleback in government jobs; and (iii) delay in the implementation of 10th Malaysia Plan projects.

We are initiating coverage on Protasco with a “buy” recommendation with a target price of RM2.90. Our target price is derived on financial year 2015 ending Dec 31 (FY15) sum-of-parts valuation, pegging its construction and road maintenance concessions earnings at 2015 price-earnings ratio (PER) of nine times, property development business with a revised net asset value of RM503.7 million (after applying a 20% discount), and all other business segments at 2015 PER of seven times. — MIDF Research, March 18

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This article first appeared in The Edge Financial Daily, on March 19, 2014.