Protasco - FY13 Core Net Profit Grows 8%

We  maintain  our  BUY  recommendation,  forecasts  and  MYR1.80  FV. Protasco’s FY13 results met our expectations.  The company is a  good small-cap  proxy  to  public  infrastructure  spending,  particularly  road maintenance and public housing. We also like its MYR10bn De Centrum integrated  development  in  Bangi.  The  stock’s  dividend  yield  is attractive at 6-7%.

• Decent  FY13.   Protasco’s FY13  core net profit of MYR40.6m (excluding MYR8m forex and disposal gains) came in within our expectations. FY13 core net profit grew 8%  y-o-y,  backed largely by  improved performance from  its  non-concession  business  comprising  construction,  engineering services, property development, trading and education. This more than offset  the  lower  profits  from  the  road  maintenance/concession  division owing to higher cost pressure.
• Strong FY14 earnings growth seen. We project Protasco’s earnings to grow  41% in FY14, driven largely by: i) contributions from two recently secured  public  housing  projects  with  a  combined  contract  value  of MYR587m (see Figure 2 for its outstanding construction orderbook), and ii) a first full-year contribution from the  MYR10bn  De Centrum  integrated property project .
• Risks.  These  include: i) new construction  jobs secured in FY14 falling short of our MYR200m estimate (YTD Protasco has secured MYR88m), ii) escalating input costs, and iii) poor demand  for De Centrum.
• Maintain BUY.  Protasco is good small-cap proxy to public infrastructure spending, particularly road maintenance and public housing. We also like the company’s  MYR10bn  De Centrum  integrated  property project, which involves  the  redevelopment  of  the  100-acre  Infrastructure  University Kuala Lumpur (IUKL) land in Bangi that it  acquired at a very low price. A strong  balance  sheet  (with  a  net  cash  of  MYR161.4m  or  49  sen  per share)  and  highly  cash-generating  road  maintenance  concessions  will underpin  a  10  sen  dividend,  based  on  our  forecast.  This  will  translate into a 6-7% yield. We keep our SOP-derived FV unchanged at MYR1.80, valuing  its  IUKL  land  at  market  price,  concessions  by  DCF,  and construction and other businesses at 10x FY14 earnings (see Figure 3).