Investment Research - Protasco Berhad (HLGeBIZ) - 05-Mar-07
Good dividend yield
Road construction specialist, Protasco was established by Dato’ Chong Ket Pen and Dato’ Hasnur Rabian, the ex-employees of Jabatan Kerja Raya (JKR). Protasco’s core businesses are road construction, upgrading, rehabilitation and maintenance works by using recycling technology. Benefits of recycling are the faster completion and cost saving of 20% as less time and materials is required.
Supported by stable concession earnings: Protasco’s earnings are supported by its 3 concessions for road maintenance with a stable annual turnover of RM260m and PAT of about RM27m. For FY06 results, concession earnings accounted for 80% of EBIT. The 3 concessions are:
1) 15-year federal road maintenance concession of 6,200km
from February 2001 to 2016, covering Selangor, Pahang, Kelantan and
2) 15-year federal road maintenance concession of 420km from September 2003 to 2018, and
3) 15-year concession from January 1997 to 2011 to provide engineering services to federal and state governments.
Construction orderbook may increase: Protasco’s orderbook replenishment rate has been rather slow over the past 3 years, which explained the 36% yoy decline in Protasco’s FY06 net profit.
Nevertheless, we expect earnings to pick up in FY07 as the group has
secured a RM246m job for design, construct, rehabilitation and upgrade of Jalan Alor Setar- Kuala Nerang- Durian Burong, Kedah in September 2006. The company also secured a RM128m road maintenance project in Libya (60% owned) and another smallish RM45m job in February 2007 to build teachers' training college in Glugor, Pulau Pinang. Protasco’s current unbilled orderbook is RM459m, or about 0.8x of FY07 consensus revenue. Orderbook may improve as we expect more 9MP projects to be rolled out in 2007.
Stable gross dividend yield of 7.3%: Protasco’s FY06 DPS remains at 7sen despite the 36% yoy decline in net earnings, this translates to attractive gross yield of 7.3%. We believe that the risk of lower DPS is low given that 80% of earnings are supported by concessions.
Reasonable valuations: Protasco’s FY07 PER of 9.4x (based on consensus) may look stretched against its unexciting earnings growth. Nevertheless, we believe that there is little downside to Protasco’s current share price as it is supported by an attractive dividend yield of 7.3%. In addition, Protasco has a strong balance sheet with net cash of RM84.2m. Ex-cash PER at 6.6x is also decent. The key for re-rating will depend on Protasco’s ability to clinch new projects in
FY07, which we believe is likely to come from Libya and 9MP projects.