Sunday, October 27, 2013

Protasco - A Hero Within (RHB)

Protasco -
Target Price: MYR1.80
Price: MYR1.33
A Hero Within

We  initiate  coverage  on  construction-cum-property  company  Protasco with  a  BUY  recommendation  and  a  FV  of  MYR1.80.  Protasco  does  not have to look very far for growth opportunities, as the “hero” is in itself as  it  is  sitting  on  a  prime  100-acre  university  campus  land  plot  in  KL, which  is  ripe  for  redevelopment.  It  is  able  to  substantially  grow  its construction business, backed by a strong pipeline of new jobs.


- Sitting  on  a  gold  mine.  Relatively  small  now,  Protasco’s  property development  business  could  potentially  become  very  sizable,  anchored by  the  massive  redevelopment  of  its  very  prime  100-acre  Infrastructure University Kuala Lumpur (IUKL) land in Bangi into a MYR7bn integrated development  named  De  Centrum.  Protasco  has  already  locked  in MYR186m  sales  from  its  recent  maiden  launch,  ie  MYR264m  Phase  1 comprising apartment,  shop  and  small-office-home-office  (SOHO)  units, and a neighbourhood mall.

- New  construction  jobs.  Protasco  expects  a  strong  pipeline  of  new construction  jobs.  It  hopes  to  further  grow  its  outstanding  construction orderbook,  which  stands  at  MYR690m  currently.  It  is  eyeing  largely government jobs on a negotiated basis which fetch better margins.  We believe  it  is  timely  for  Protasco  to  channel  more  resources  towards building its conventional construction business, as its road maintenance concession business is already very much on “auto-pilot”.  

- Potential  acquisitions  and  sustained  dividends.  The  company’s cash-rich  balance  sheet  and  highly  cash-generating concession  assets will underpin  its sustainable dividend payouts and serve as a war chest for acquisitions to broaden its earnings base.

- Start coverage with BUY, MYR1.80 FV. We project FY13-14 net profit growth  of  8%  and  28%,  driven  largely  by  improved  property  and construction  profits.  Our  MYR1.80  FV  is  based  on  sum-of-parts  (SOP) valuation,  valuing  its  IUKL  land  at  market  price,  road  maintenance concessions  by  DCF  (assuming  no  extension),  and  construction  and other businesses at 10x FY14 earnings. BUY.


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