Target Price: MYR1.80
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.