Thursday, 16 January 2014

Protasco: Seeking A Breakthrough

Protasco Berhad recently proposed a private placement of 50mil new shares which comes with 2 free warrants each, plus a bonus warrant of 1 free warrant for every 10 ordinary shares.

The placement shares represent 15.93% of current total shares while total warrants issues will be 100mil + 33.5mil = 133.5mil.

The exercise price of warrants is proposed at RM2 with an exercise period of 5 years. If all the warrants are converted into shares, Protasco's total shares will reach about 539mil (including ESOS, & treasury shares), compared to 332mil shares at the moment.

This represents a dilution of about 62%. Will Protasco's net profit attributed to shareholders increase by at least 62% in 5 years time?

Protasco is a diversified group with businesses in:
  • Maintenance
    • Road maintenance service
  • Construction
    • Construction of new roads & building
  • Engineering service
    • Road, traffic & construction related
  • Education
    • Infrastructure University Kuala Lumpur (IUKL)
  • Trading
    • Construction related materials
  • Property

The maintenance segment is Protasco's bread & butter in which for its first 9 months of FY2013, 60% of revenue and 98% of PBT come from this segment.

For 9MFY13, Protasco's revenue and profit after tax & minority interest increases by 20% (RM484.0mil to RM581.7mil) and 7% (RM30.7mil to RM32.8mil) respectively compared to previous year's corrsponding period.

It is not easy to predict Protasco's FY13Q4 results as its quarterly performance fluctuated a lot historically. 

Nevertheless, I believe Protasco's PATAMI can reach at least RM42mil for FY2013. This represents an improvement of 12% from RM37.5mil in FY2012. 

       Protasco's financial performance 2008-2012

At this earning level and current total shares of 332mil, EPS will be 12.7sen. If we give a fair PE ratio of 10x, then the target price will be RM1.27. Currently Protasco is trading at RM1.42, with a forward FY13 PE of 11.2x.

In other words, Protasco's share seems not very undervalued at RM1.42.

If Protasco's share base is to be increased by 62% in 5 years time, can its PATAMI increase 62% as well to RM68mil in the same period of time?

       Maintenance work

While the maintenance and construction arms continue to contribute recurring and consistent profit, Protasco's "62%" increase in earning may depend on:
  • Property development
  • Oil & Gas


Protasco has completed its maiden property project Unipark Condominium in Kajang in 2012. Currently it is working on its second property project on the same site - De Centrum City, which sits on a 100-acre land which includes IUKL in Kajang.

The whole project is worth about RM5bil and will take 10-15 years to complete.

Phase 1 of De Centrum City, known as De Centrum with a GDV of RM239mil will take up only 4.6 acres of the land and was launched in 2012. It comprises 192 units SOHO, 320 units serviced apartments, 60 units 3-storey shoplots and a 3-storey mall with an NLA of 76,000 sq ft.

       De Centrum, Kajang

From internet search, currently the construction progress is only on ground level for the 12-storey SOHO (on 3-storey mall) & 20-storey apartments (on 8-storey car park & 1-storey facility floor).

From the circular to shareholders in relation to the private placement, the management mentions a proposed development of 2 blocks (Block C & D of De Centrum) of 20-storey apartments comprises 240 units apaerments & 80 units duplex with a GDV of RM130mil (cost RM117mil). It is expected to commence in Q2 FY14 and might be part of the phase 2.

De Centrum City may be more resistant to property slow down as it has great location. It is surrounded by IUKL, UPM & UniTen, and is at the junction of KL-Seremban Highway, SKVE, SILK and Besraya Highway. 

       De Centrum City: at the junction of major highways

       De Centrum City Masterplan

According to its MD Dato Sri Chong KP, Protasco is looking to increase property contribution to 10-15% of group profit in 3-5 years time (currently 5%), and targeting a minimum of 40% contribution in the long run.

The management has acted on its words by acquiring a 14.4 acres leasehold land in Pasir Gudang from JCorp through its 64% owned subsidiary Sun Rock Development for RM22.5mil. Protasco plans to develop the land into a mixed development which carries a GDV of RM505mil. The development should start after 2015.

Oil & Gas

Protasco has announced its proposed venture into oil & gas sector since December 2012. It was initially expected to be completed by 2013 but has been delayed.

From the proposed acquisition, Protasco will acquire 95 million shares or 76% of PT Anglo Slavic Indonesia (ASI) from PT Anglo Slavic Utama (ASU) for USD55mil (RM170.5mil).

PT ASI was incorporated in Indonesia on 6 Sep 2012 and is involved in oil & gas assets investment. PT ASI holds 95% of PT Firman Andalan Sakti (FAS), which holds 70% of PT Hase Bumou Aceh (Haseba).

The jewel here is PT Haseba, who has been granted rights by PT Pertamina (state-owned) to develop and produce O&G in Kuala Simpang Timur field at Nanggroe Aceh Darussalam Province, Indonesia. However, the 10-year agreement from 14 Dec 2004 will expire in the end of 2014. PT Haseba is understood to be in negotiation with Pertamina for an extension.

So, Protasco will have 0.76 x 0.95 x 0.70 = 50.54% stake in PT Haseba.

For its FY2009 ended Dec09, PT Haseba registered a PAT of RM95mil out of a revenue of RM274.0mil. However, I'm not sure what kind of corporate exercise was done as it suffers total RM237mil loss in 2010 & 2011 with almost zero revenue.

If PT Haseba is to maintain its FY2009 performance after Protasco acquisition, then it will be 95 x 0.5054 = RM48mil net profit a year to Protasco, which is higher than its overall estimated PATAMI of FY2013!

However, PT Haseba's profit is hard to predict at this stage.

In the agreement of acquisition, a profit before tax guarantee of USD50mil (RM155mil) in 4 consecutive financial years is given for PT ASI by PT ASU. By average, this would be RM39mil PBT a year.

As Protasco will own 76% of PT ASI, it will be RM29mil average annual PBT for Protasco. This figure is close to Protasco's FY13Q3 single quarter PBT of RM30.4mil.

With the contribution from future O&G and property segment, Protasco should be able to increase its PATAMI by at least 62% discussed above. With the management's ambition to become a prominent property player, the future earning prospect of Protasco is quite impressive.

Thus, even though all warrants are converted into shares in 5 years, Protasco should be able to provide a higher EPS compared to now.

For its bread & butter business, Protasco has secured a few contracts in the past one year.

  • Dec 2012 - maintain roads in Perak for 7 years, RM29.6mil for first 2 years
  • May 2013 - upgrade roads in Kedah in 9 months til Feb14, RM37mil
  • Jun 2013 - construct roads in Johor in 12 months, RM50.4mil
  • July 2013 - maintain roads in Sarawak, RM23mil
  • Oct 2013 - construct 1680 apartment units in Putrajaya in 24 months for 1M Civil Servants Housing Programme, RM578.5mil

For the construction contract in Putrajaya, it is mentioned that the development cost is RM520mil. So perhaps it is roughly a PBT of RM58mil in 2 years or RM29mil a year, which should contribute massively to the group.

Besides, IUKL has been upgraded to full-fledged university status since Sep 12. With better academic status and the development of De Centrum City, IUKL might attract more students in the future.

       Historty of IUKL

Protasco is currently in net cash position after a private placement in early 2013. At 9MFY13,

  • Cash & bank balances: RM56.3mil
  • Deposits with license banks: RM67.6mil
  • Short term borrowings: RM43.3mil
  • Long term borrowings: RM4.0mil
  • Bank overdraft: RM13.9mil
Net cash = RM62.7mil

However, after the acquisition of Oil & Gas company and Johor land, its cash is expected to diminish quickly. That's why it is calling for another private placement and warrants.

For FY2012, Protasco gave away 8 sen dividend + special dividend 6 sen, altogether 14sen single tier. This represents a mouth-watering 10% yield at RM1.40.

I think investors can expect at least 8-10sen net dividend for FY2013, which is 5.6%-7% yield if you buy the share at RM1.42. So far 4sen has been paid.

Thus, Protasco is another company with both good dividend and growth potential.

       MD & founder Dato Sri Chong Ket Pen

Back to the proposed private placement & free warrants, the placement share price is at least RM1.65 and the warrant exercise price is at RM2. Both are significantly higher than current share price of RM1.42.

Does this mean that Protasco is at least worth RM1.65 in 2014?

I've been waiting for Protasco's share price to drop to my desired level for the last 3 months but apparently it doesn't happen, and will never happen I guess, especially when the O&G acquisition is finalized probably in the first quarter of 2014.


  1. 《For the construction contract in Putrajaya, it is mentioned that the development cost is RM520mil》
    May I know where do you find the above statement from? If it is true, mean its net profit margin will be ard 10% only.

    Btw, I like the way you analysis stock. well done.

  2. Thanks TSS.

    For the Putrajaya contract, u can refer to Protasco's circular to shareholders for private placement released on 15 Jan, page 22.

  3. I yet to read the proposal details. will take a look on it later. thanks on the info.

  4. But the acquisition takes so long to finalize :(

  5. CT, your patience has started to get rewarded :)

  6. It's small contract, but unexpected. Property development segment going to contribute much more starting next financial year ~

  7. I also think its property arm will make a difference. RHB recent report is quite positive, but just curious why its O&G venture is not mentioned. No one is interested to ask about it in the meeting with fund managers?

  8. Haha the contract is too big or too many things to hide. Haha analyst normally only report good things :D

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