We believe its share price weakness was largely due to negative perceptions on the termination of its proposed venture into oil and gas (O&G) as well as an ongoing civil suit.
Protasco on track to double net profit
By MIDF Amanah Research / MIDF Amanah Research | March 20, 2015 : 10:25 AM MYT
Protasco Bhd ( Financial Dashboard)
(March 19, RM1.56)
Maintain buy with unchanged target price of RM2.45. Yesterday, media reported that Protasco’s management is confident that the group’s earnings will return to the black this year after it made impairments last year.
The group is on track to double its net profit to RM100 million in the next five years, riding on growth in the construction and property sectors.
Management’s five-year compound annual growth rate (CAGR) target of 15% in net profit is achievable in our opinion, backed by improving contributions to group earnings from its core businesses.
Based on its historical track record, the group has achieved a six-year CAGR of 14% in net profit. We are comfortable with the group’s earnings growth prospects underpinned by adding to its current outstanding order book of RM590 million. A success rate of 10% to 20% or RM100 million to RM200 million on its RM2 billion tender book will to keep its earnings visible for the next three years.
Billings on its ongoing property projects will continue on the back of strong demand for its properties, particularly the RM10 billion De Centrum City. Should the proposed Klang Valley Mass Rapid Transit (MRT) Line 2 stations — University Tenaga Malaysia and Serdang — be finalised in the coming months, we believe it will be positive for its property sales going forward despite the challenging property market outlook.
We understand that a federal road maintenance concession in the southern part of the country has been awarded to the same contractor. Hence, we are sanguine that the group’s soon-to-expire concession will be renewed with the possibility of additional work scope.
We leave our forecast numbers unchanged and maintain our “buy” recommendation on Protasco with an unchanged target price of RM2.45 per share.
Our valuation of RM2.45 is derived based on financial year 2015 (FY15) sum-of-parts method, which implies a FY15 price-earnings ratio of 10 times. We believe its share price weakness was largely due to negative perceptions on the termination of its proposed venture into oil and gas (O&G) as well as an ongoing civil suit.
The group has already made impairments of RM104 million last year for the proposed O&G venture. Moving ahead, we expect the group’s earnings to improve. — MIDF Amanah Research, March 19
This article first appeared in The Edge Financial Daily, on March 20, 2015.