Prooootasco Q4FY13 update

Here comes with the peak period of time where listed companies release their financial reports, so does Protasco Berhad. The group just released its final quarter for financial year 2013 this evening.

The group able to record a 26% and 135.5% increases in revenue and net profit respectively compared to corresponding period last year. Huge increases in net profit was due to lower distribution to non-controlling interests. Both revenue and net profit were highest for the past 5 quarters. Net profit margin still low at around 4% only. EPS for the quarter is 5.15 cents which was highest in the year. 

For full year 2013, revenue and net profit increased 22.45% and 29.8% respectively compared to last year. This was due to increase in profits from all over the segments as shown in the table later. Full year ROE is 12.30, still lower than my benchmark of 15 while full year EPS is 15.79 cents which translated into PE of around 10 based on today price of RM1.55. 

In terms of balance sheet, few things to note here. Trade receivables and payables increased 28.6% and 60.3% compared to last year. Protasco's trade receivable turnover and payable turnover always not that good all this while, both ratios are around 140 days for year 2013. Current ratio dropped to 1.56. Good thing is the cash balance increased to RM237 mils from RM155 mils earlier with around RM48 mils borrowings. 

From the cash flow statements, it can be seen that majority of the cash increases came from the operating cash flow as a result of big jump in increase in payables, perhaps the group is trying to delay the payment to the suppliers. Additional cash will be generated from the private placement that still in progress. Foresee the final dividend for year 2013 that yet to be announced will reduce the cash balance a bit. 

The profit before tax for its core business, maintenance & construction segment actually recorded a drop. The management commented that this was due to revised rates for periodic road maintenance were received at the end of 2012 which gave a better margin. Engineering service, trading and education segments were showing improvement from loss last year especially the trading department who supports the maintenance, construction and property development will improved further along with those segments. Lastly, the property segment started to contribute higher profits to the group compared to last year but hopefully more to come next year. 

For full year 2013, no doubt road maintenance is still the core business for Protasco group. Hopefully, the engineering segment will keep on improving its result as the segment recovered from loss last year. Next growth will be the property development segment at which the group mentioned the progress of the De Centrum project was just at 20% as at Dec 2013. For 2014, the group will depends on the usual maintenance segment and counts on the construction and property segments as there were few major projects were secured for construction and higher contribution from the De Centrum project. Another thing to note is the profit margin from the construction segment is just far too low, managed to earn a mere RM2.6 mils profit before tax from RM171 mils revenue. That's just 1.51% margin. 

For long term, the venture into oil & gas industry will give additional incomes to the group. But, it's still too early to judge this as there are few doubts about the acquisitions.

 Right now, just hold on and enjoy the free warrants and ride on the profits. 

~ Protasco Berhad 富达 (PRTASCO) AnAlysIs ~

Protasco Berhad is a 20-plus-year company which involves in few business segments. Apart from the core business which is construction & maintenance segment, the group also has engineering service, construction material trading and education & training. Apart from that, the group also ventured into property segment since year 2008. 

The group's core business, construction and maintenance segment involves in construction of new road, buildings and bridges as well as maintenance works. The group has two 15-year federal road maintenance concessions and three 7-year contracts for the maintenance of state roads in Selangor, Perak and Terengganu. Besides, the group also has road maintenance jobs in Libya.

So perhaps next time when you see some foreign workers filling up some porthole or doing road construction, take a look on their uniforms or badges whether they’re from Protasco or not. So if you own a share in Protasco, then you will know that your workers are doing their job properly under the hot sun :)

Based on the past 7 years result, the group able to record a CAGR of 5.7% in terms of revenue. Due to the nature of its business & contracts, not much growth would be seen from its core business. That’s why the managing director once said before that the group need to venture into other segments like property and oil & gas business in order for the company to grow faster as the growth to construct new road and maintenance is quite slow.

Throughout the years, the group able to record a gross profit margin of around 25% but it turn out to have a poor net profit margin of around 5%. Special thanks to its high administrative cost and other expenses as well as high non-controlling interests in its construction & maintenance subsidiary as you can see from the table, the non-controlling interest percentage range from 26-47%. This causes the group a little bit of inconsistency in its net profit.

Else way, the group is good at giving out dividend which has a dividend payout ratio of 60-70% at which there was a special dividend last year as well. Not expect there will be another special dividend this year as the group need some cash for its property development and acquisition.

From the balance sheet, Protasco maintains a net cash position and a gearing ratio of below 0.2 all this while which is quite good. Trade receivable turnover at around 4 months. Isn’t so hard to collect money from the government? :)  

Poor thing of Protasco is the group does not reach the benchmark ROE of above 15% all this while. 

In terms of cash flow, the group consistently spent around RM21m annually for capex, which gave positive free cash flow every years. This explains why the group had much spare cash left and paid out dividends to its shareholders. Owner’s earnings/sales averagely stood at 5%, which is slightly stood at the benchmark.

Above table shows the operating profit breakdown of the group’s segment for the past few years. Construction and maintenance acts as the back bone and generate recurring income for the group. Big drop in revenue and net profit in year 2012 for the engineering services department was due to higher provision for doubtful debts and expiry of government concession in 2011. Drop in revenue and net profit in year 2011 was due to losses incurred in Libya and higher construction material costs. Both education and trading segments were showing some downward trend in contributing to its group revenue even the education segment had been upgraded to university status in FY2011.

It’s all still depends on the property segment for future growth. The De Centrum City in Kajang has a master plan of GDV of RM4.5billion with development period of 10-15 years which the management targets the property alone to contribute at least quarter of the group's operating profit by 2015. For the 9 months period of FY2013, the property segment already recorded around RM4.7m operating profit. In addition, the group just received a contract of RM578m to construct apartments in Oct 2013 for a 24 months development period.

The group managing director, Dato Ir Chong Ket Pen and ex-deputy chairman, Dato Ir Hasnur Rabiain bin Ismail (resigned in 2012) co-founded the company in 1991. Both graduated as civil engineer and began their career as road design engineer at PWD and JKR respectively. Both involved in R&D extensively throughout their career and having extensive experience in design, maintenance of road pavement. 

Some additional notes are, 

1. The group perform share by back every years but the quantity become lesser in FY2011 & FY2012. But the company did purchase back twice with huge amount each which total up to 17.3 millions shares being purchased in March 2013. 
2. Changed much of the board members in FY2012,
3. LTH was once the substantial shareholders but just ceased of the status last month and Fong SiLing becomes one of the shareholders with 1.5million shares in annual report FY2012.
4. 2 private placement with a total of 27.4m ordinary shares were listed in 2013 that raised around RM30m. No. of shares increase by around 9.2% as a result of these private placement. EPS probably will be diluted a bit.

Overall, it’s a mediocre company for me. Perhaps the ROE will improve once there is bigger recognition from the property segment and push up the earnings as well. Regarding the planned acquisition of PT Anglo Slavic in Indonesia for about USD55m which open yet another segment for the group, I’m not good enough to comment about this as the acquisition cost consider quite big as it covers almost half its shareholders equity and there is not much info declared.

Well, just continue monitor and see the outcome.