Protasco - Paving The Road For a Strong Turnaround
rhbinvest
Publish date: Thu, 13 Feb 2025, 11:10 AM
- MYR0.65 FV based on 11x FY25F P/E, 88% upside. Protasco is set for a strong turnaround on significant improvements in its highly recurring road maintenance and construction activities, and loss-making education arm's disposal. A long operating history and comprehensive infrastructure solutions catering to a diverse range of stakeholders makes it well-positioned for sustainable growth. Trading at a deep discount of 5.8x FY25F P/E and 0.5x P/BV, it is poised for a re-rating, supported by improved profit visibility, and management's restructuring efforts and refocus on core businesses.
- Schedule rate revision to drive margins expansion. The approval of a 25-30% rate revision for periodic maintenance works in Apr 2024 is set to significantly enhance margins and profitability. Moreover, the higher allocation under Budget 2025 for the Works Ministry, and potential additional funding from special programmes for Malaysia's ASEAN Chairmanship in 2025 and Visit Malaysia Year 2026, is likely to benefit its road maintenance segment. As the largest player in this space, with 18,000km of road maintenance concessions and outstanding orderbook of MYR1.5bn, Protasco is well positioned to capitalise on these opportunities.
- Construction segment to elevate earnings. The current outstanding orderbook of MYR224m (5x cover), primarily from Federal Road FT004 upgrading works in Kulim, Kedah, will underpin earnings growth through 2026. With a tenderbook of MYR2bn (direct and indirect) focused on government infrastructure jobs - eg road construction, hospitals, flood mitigation, and water-related works with various agencies - we only factor in a conservative orderbook replenishment of MYR250m pa for FY25-26.
- The property segment is showing promising recovery, supported by the new Projek Residensi MADANI Melur and Projek Residensi Harga Bebas Kenanga developments awarded by Putrajaya Corp on 23 Oct 2024 with an estimated GDV of MYR477m. This, coupled with its existing 137 acres of landed housing development in Tampin, Negeri Sembilan, is set to narrow losses (mainly from De Centrum Mall).
- Loss-making education wing disposal. As part of its corporate restructuring exercise, Protasco is divesting a 90% stake in its education business for MYR27m. This segment reported a 9M24 pre-tax loss of MYR5.9m. The disposal, set for completion by 1Q25, will significantly improve the group's profitability after deconsolidation in our view.
- We project a sustainable earnings turnaround in FY24 of MYR12m before a 142% earnings growth quantum leap in FY25 to MYR 29m from FY23's loss-making position. The 11x P/E ascribed is fair at a 15% discount to the KLCON Index's mean, given its smaller size but stronger recurring income base, high profit growth backed by robust orderbook, and undervalued landbank at healthy gearing. Key risks: Contract non-renewals, project delays, material cost escalations, and weaker-than-expected orderbook replenishments.
Source: RHB Research - 13 Feb 2025