KUALA LUMPUR (April 18): RHB Research expects Pintaras Jaya Bhd to ride on the recovery of Singapore’s construction industry given its sizeable footprint there with about 80% of its revenue coming from that city-state.
It added that the group is “not highly exposed to the murky outlook of mega projects in Malaysia”.
Having a net cash position as at Dec 31, 2021 will also enable the group to take on larger jobs going forward, it noted in an April 18 report.
“Valuation remains attractive — trading at a circa 35% discount from its three-year average. Pintaras’ latest construction orderbook stands at circa RM320 million (Singapore: 80%, Malaysia: 20%), translating into an orderbook/revenue cover ratio of <1.0 times — lower than the average of 2.0 times amongst piling companies under our coverage,” RHB Research said.
“However, this is not a point of concern since most of its contract awards have tenures shorter than 12 months — leading to fast completion of projects. We also take comfort from its average replenishment rate of circa RM400 million in the past three financial years,” the research house added.
Looking ahead, RHB Research opined that Pintaras will be well positioned to benefit from the pickup in Singapore’s construction sector. Singapore’s Building and Construction Authority (BCA) has projected construction demand to range between S$25 billion (about RM78.13 billion) to S$32 billion from 2023 to 2026 — back to pre-pandemic levels.
“This will be supported by the strong pipeline of public housing projects, as well as healthcare development and infrastructure work, including the Cross Island MRT Line which it has previous experience in,” it added.
RHB Research estimates the operating profit of Pintaras’ manufacturing division to grow steadily to the tune of about 4% in the next two financial years.
This, the local research house added, is backed by robust demand from major customers such as Japanese paint product manufacturer Nippon Paint, which forecasts a 5-10% revenue growth in 2022 in Asia (excluding China and Japan).
In terms of cost management, RHB Research said the group is able to cope with rising raw material prices compared to its construction division as it is able to periodically revise the pricing of its products based on the prevailing trends.
It made no changes to its FY22F-FY24F earnings for Pintaras.
“Our target price of RM3.24 is also kept unchanged as we still peg a target P/E of 9 times to our unchanged FY23F EPS followed by a 4% ESG discount based on our in-house ESG scoring methodology.
“The target valuation P/E of 9 times is a 30% discount to the KLCON Index’s forward P/E of 13 times, flagging the risks of burgeoning global raw material costs.
“Moreover, we deem this target valuation to be fair as Pintaras has a relatively smaller market capitalisation of RM438 million,” it said.
RHB Research added that downside risks for the company include failure to secure new contracts and more intense competition among piling contractors.
Pintaras’ stock was unchanged at RM2.64 this morning.
Source: TheEdge - 19 Apr 2022
