Wednesday 3 September 2014

Why Protasco?

Last year I did not want to buy Protasco's shares at RM1.40, but now I bought them at RM1.64!

When I started to study Protasco last year, its share price was hovering around RM1.40.

Apart from the fact that it depends on government for contracts which I don't really like, I think it is still a good company to invest in, as it diversifies its earnings into property & Oil & Gas sector.

At that time, I decided that I will only buy Protasco if its share price drops to RM1.20 or below.

In the end, it turned out that Protasco's share price advanced 50% from RM1.40 all the way up to RM2.10.

I thought that I will never have a chance to be a shareholder in Protasco, just like what I experienced earlier with Boilermech & BJ Auto.

However, due to the cancellation of O&G deal, and perhaps disposal of shares by major shareholder & director, Protasco's share price fell all the way down from RM2.10 to current level of around RM1.65.

I was aware that its share price was falling but I did not really keep a close eye on it, until one day it just happened by chance that I noticed it has reached its major support line at RM1.65 on 15/8/2014.

I have a strong feeling: Is it my second or perhaps last chance to own Protasco?

So I bought its shares at RM1.64 on 15/8/2014, at 12:29pm just a few seconds before market afternoon break.

Never had I felt so lucky because after the market re-opened 2 hours later, straight away Protasco jumped and closed at RM1.69. It even breached RM1.80 in the next 2 days.

However, it has fallen back to my entry level now. Luck is running out? Or third chance to accumulate more?

Why I bought Protasco? There are actually multiple reasons.

1. Growth in property & construction division

Protasco launched the first phase of its DeCentrum project in Bangi in the end of year 2012. It's been almost 2 years so I would expect it to contribute more to its top & bottom lines from now on, though the overall GDV is not too high at RM250mil.

Just recently in June 2014, Protasco has launched the phase 2 of DeCentrum, which is Unipark condo (2x20 storey towers with 320 units) with GDV of RM225mil. It was reported that 50% were snatched up in the first week. So this should contribute positively to its FY14Q3 result I guess.

This 100-acre RM10bil DeCentrum project is 100% owned by Protasco.

Protasco has purchased 14.4 acres of commercial land in Pasir Gudang. Earlier MIDF reported that it may launch phase 1 with GDV RM800mil next year. However, in anticipation of softening property market next year, Protasco is looking to slow down its launch in the near future.

Besides, Protasco has entered into an MoU on 28/5/14 to joint-venture with Nextnation (Nexgram) to develop a 5.9-acre mixed development in Cyberjaya. Both parties share similar shareholder in Tey Por Yee & Ooi Kock Aun. The MoU will expire in 6 months.

For the construction part, the excitement is the RM578.5mil  PPA1M Civil Servants housing project at Putrajaya awarded on 23th Oct last year. It is expected to be completed in 2 years so it might also contribute greatly from the second half of FY14 onward.

Meanwhile, the two PR1MA projects worth RM88mil at Manjung & Jelebu have been delayed due to land issue.

       Phase 2 of DeCentrum - Unipark Condo

2. Attractive dividend yield

Even though at RM1.65, Protasco's PE ratio is not that low, but its dividend yield is certainly excellent at 6%.

I think this dividend yield can support its share price above RM1.65. As I expect its bottom line to grow in the next 2 years, this means that dividend paid to shareholders will increase as well, as long as it keeps its generosity in dividend payout at 50-60%.

FY Net Dividend / Share (sen)
2009 9.0
2010 10.0
2011 8.0
2012 14.0
2013 10.0
2014 ??

3. Strong balance sheet

In short, it is in a net cash position. Cash flow from operation in FY13 was very good but it is in the negative territory after the second half of FY14, mainly due to decrease in payables.

This may not sound nice but I find that Protasco usually has negative operating cash flow in mid year, and it will turn positive at year end may be due to the billing nature of its contracts. Protasco never fail to end its financial years with positive operating cash flow since listed in 2003. So I expect it to turn positive by year end.

4. Failure in O&G venture

For me, the inclusion of O&G business will make Protasco complicated and hard to predict. It may need to pump in a lot of money. So it's not the end of the world after the deal fell through, as Protasco will concentrate more on its core businesses.

5. Falling share price.

If Protasco is still trading at RM2.00 or above, I will not consider to buy. However, it fell to a strong support with dividend yield of at least 6%.

       Protasco @ RM1.65

Anyway, there are some issues that need to be taken into account.

As we all know, a big chunk of Protasco's income comes from road maintenance contracts, which is recurring in nature.

However, some of the long-term contracts are expiring soon as shown in the table by MIDF below.

MIDF reported that Protasco is currently negotiating for renewal of road maintenance contracts. MIDF is confident that Protasco will be awarded the renewal contract by the end of 2014. If it fails, then the attractiveness of Protasco will be greatly discounted.

The award of building construction is on negotiation basis, and the contracts may not come regularly. So this might mean fluctuation in financial contribution from construction division.

So far the contracts awarded to its construction division this year include:
  • 21/1/14 - Projek Perumahan Mampu Milik 1Malaysia in Manjung & Jelebu, in 18 months from date of sites possession, RM88.1mil
  • 2/6/14 - Federal road zone 2A Sarawak, in 12 months, RM21mil
As stated earlier, the PR1MA projects are still yet to kick off due to land issue. 

In Mac 2014, Protasco has also signed agreement with Himalayan Builders & Engineers to invest USD100mil to set up engineering testing lab (memorandum of collaboration) & boutique hotel (MoU) in Nepal. At the same time, an agent will promote and enroll Nepalese students to IUKL.

       Beautiful Nepal

Protasco has proposed private placement of 50 million new shares together with 1:2 free warrants, as well as bonus issue of 1 free warrant for 10 existing shares. Total warrants issued will be 133.5mil. This exercise will increase the total paid-up share by a whopping 54.8% to 518mil if all warrants are converted to mother shares in the future.

Since the O&G venture has failed, I think Protasco's small shareholders should pray very very very hard that this corporate exercise will be called off.


  1. wah, share price today up so much because of your article :)

    One correction, the group did not declare any dividends for FY2014 yet. The 6sen was for FY2013.

    For the PPA1m project, I approached the IR for confirmation. She told me the project already started in April. However, the cost is significant low to be recognised in Q2FY14, but expected to contributed significantly from Q3FY14 onwards.

    Btw, you mentioned that the launching of phase 2 of DeCentrum should contribute positively to its FY14Q3. I thought the group only able to recognise its contribution once the construction work of the project begins?

    1. No lah, before I published this post, the share price already gone up! Thanks for your correction, will make amendment.

      For the DeCentrum phase 2, I'm referring to the first 10% upon signing of SPA, but I'm not sure whether SPA will be signed in this quarter or not...

      Did u ask IR regarding the PR1MA project? I read news in July saying that it's delayed.

  2. Yes, due to land issue. State government haven't allocate the land for them.

    For the development in Pasir Gudang (JV with Sun Rock) and Cyberjaya (Nexgram), both projects still in planning stage only.

    Other things like Libya project, they have temporarily ceased the operation given the security situation there.

    Just want to confirm with you regarding the revenue recognition for property project, so the group will start recognize the first 10% down payment upon signing of SPA and subsequently recognized based on POC method once construction works start?

    1. The first 10% paid by buyers upon signing of SPA will go to developer but whether it is recognized as revenue in accounting I'm actually not too sure. Since those cash are collected so I think it should go into revenue & profit.

    2. Subsequently should be according to construction progress, eg next 10% upon completion of ground work, next 15% upon completion of framework and so on.

  3. Could you provide your insight on Huayang?

    It looks good for a company aggressively looking for land. On top of that, Ikea has sign the agreement and indirectly Bkawan area will benefits

    1. Hi Jason, Huayang has got land in Penang?

      I think Huayang is definitely a great company to invest in. Actually before I bought Protasco I actually took Huayang & OSKProp into serious consideration. I think at current price these 2 are quite attractive. Just my 2 cents.

  4. Hi. I nearly bought Protasco 2-3 years back when its price went really south (around 80-90c I think); but i decided against it because its revenue was dropping and there was no earning visibility going forward.

    But out of the blue it has been securing new contracts and been active in property dev since last year. Kind of reminds of Gadang (which left a bad taste in my mouth personally as I cut loss on it before its recent 'revival').

    I see the above changes as rather unpredictable and 'dangerous' to put money in for med to long term. Any views? Thanks

    1. Hi. Sometimes luck is important in investing. I just come to know Protasco less than a year, but its past financial results look pretty good to me. There is a trend that its revenue tends to increase from Q1 to Q4 in a FY, then fell substantially in the next FY's Q1 but still better year on year. Profit wise it's really unpredictable.

      Its dependence on gov for contracts is a risk which makes it a bit dangerous in my view. May be because of this the management is betting on property and O&G.

      I hope to hold longer term but if things turn sour I will not hesitate to get out.

  5. @forabetterview You may have made the right choice.

    "As the countdown to next week’s Protasco EGM continues, here are some interesting points to ponder for shareholders who may want to consider why Tey Por Yee should be kicked out from Protasco’s board.

    Actually all those who have dealings with the Tey Por Yee syndicate and also the public at large should take note of this cautionary tale.

    Just to go back a little Tey Por Yee had in 2012 brought to the attention of Protasco a deal to invest in an oil and gas venture in Indonesian concern PT Anglo Slavic Indonesia (PT ASI).

    As part of the deal some RM50 million was paid upfront, and as collateral shares in a seemingly unrelated Indonesian company PT Inovisi was pledged as collateral to Protasco.

    It should be noted that all this while the Protasco board (the innocent members of the board that is) thought they were dealing with Indonesian companies and businessmen.

    Tey Por Yee was allegedly arms length away from the deal. His only interest or so he was to lead the board to believe was with Protasco benefiting from the deal.

    Now back to the PT Inovisi shares pledged for the deal. These shares were in the name of Acclaim Investments, a company registered in the BVI with a paid up capital of US$100.

    It has now emerged that Acclaim Investments was set up in 2009 with just two shareholders. Guess who? Tey Por Yee with 85 shares and his sidekick Ooi Kok Aun with 15 shares.

    (As for February 6, 2014 these two men now no longer own any shares in Acclaim. It is now 100 per cent held by one Lim Sue Fern)

    Plus the fact that Tey Por Yee and Ooi Kok Aun also own or have beneficial interests in the various companies with interests in the PT Slavic deal one can now see this tangled web that the two men spun to entangle Protasco and ultimately receive US$27 million in a deal which has just fallen apart.

    So not bad lah this magician. He has got the US$27 million, Protasco has lost the money and there’s no deal on the table any more.

    You can draw your own conclusion as to who got cheated and who was the victim of what can only be called a giant scam.

    So who do you think you would vote out of Protasco’s board?"

    If you don't believe in the leadership, might as well don't bother. Doesn't matter what business they are in.