This article first appeared in The Edge Financial Daily on April 23, 2018

KAJANG: After two years of shrinking profits, Protasco Bhd is confident of achieving a positive growth in its bottom line in 2018, thanks to the government’s spending on infrastructure and affordable housing.

“We have suffered quite a bit for about two years,” said executive vice chairman and group managing director Datuk Seri Chong Ket Pen. “Unfortunately there was some slight discontinuity in certain construction projects and because of that it caused some gaps which affected us.”

“At the same time, we were hit by the very weak market sentiment in the property sector,” Chong told The Edge Financial Daily in a recent interview.

For the financial year ended Dec 31, 2017 (FY17), net profit fell 28.8% to RM30.16 million from RM42.39 million in FY16, while revenue dropped 12.9% to RM966.78 million from RM1.11 billion.

The FY16 net profit and revenue were 36.5% and 14.9% lower than the RM66.76 million and RM1.31 billion respectively, reported in FY15, the year the group returned to the black.

Chong projects a minimum of 10% growth in Protasco’s net profit for FY18, driven by higher government spending on infrastructure maintenance as well as affordable housing for civil servants under the Perumahan Penjawat Awam 1Malaysia (PPA1M) scheme.

“I foresee that the government spending on infrastructure will be quite sustainable for the next few years to come. You can see that the government has announced that it will be spending quite reasonably on the housing side for government servants which is an area that we are good in.

“With that kind of sustainable spending by the government, I believe that we should be able to ride on that growth for the next few years,” he added.

Chong said the group has undertaken four phases of PPA1M, and is looking to secure the fifth and sixth phases.

“We have proven to the government that we are a reliable contractor. Based on our track record, we have even completed some of the projects eight months in advance,” he said.

Protasco also appears to have benefited from more road maintenance works this year because it is an election year.

“We tend to get slightly more jobs as the government typically spends a little bit more during an election year to repair the roads. More money is spent on the maintenance side,” said Chong.

Election factor aside, Chong expects Protasco to do better in FY18 as its construction sites are now back on track, and hopes that the property sector will recover slowly from FY19 onwards.

As of now, Protasco’s order book stands at about RM1 billion, which can last for two years. Chong expects the group to replenish its construction order book by a minimum of RM500 million in FY18.

Protasco’s tender book for maintenance projects, meanwhile, is currently at about RM300 million — with a 30% to 40% chance to strike, said Chong.

Other than its property segment, Chong said Protasco is basically a government contract-based group with about 70% of its total revenue coming from government jobs versus 30% from private jobs for its business ventures in property, education and training.

At the group’s peak in 2015, the property segment contributed about 20% of total revenue, but because of the recent slowdown in the property market, the segment now contributes less than 5%. Chong is looking to increase the contribution to 15% within two years.

“We’re looking to balance out the ratio of contribution. We plan to reduce our dependence on maintenance contribution to around 40% by growing our construction and property development business. Once all that are in place, we will be back on our normal growth trend,” he said.

But Chong reiterated that Protasco is not a big time property developer, and it does not intend to be one. “Our plan is to have about RM300 to 400 million GDV (gross development value) per year. We are comfortable with that level.”

After barely any new property development launches for the past three years, this year Protasco will be pushing sales for its Sentrio shoplot development project in Pasir Gudang, Johor, with an estimated GDV of RM66 million as well as its D’Perdana Telipot apartment project in Kota Baru, Kelantan, with an estimated GDV of RM160 million.

For its maintenance segment, Protasco recently secured an eight-year extension for its concession to maintain federal roads in central and eastern Peninsular Malaysia until 2026.

The concession covers 7,000km of roads in Selangor, Pahang, Terengganu and Kelantan which was extended for another eight years after the group was initially awarded a 10-year concession, comprising an interim period of two years expiring May 16 and the eight-year concession based on a performance based contract model.

Additionally, Protasco has also been awarded two concessions by Perak state government for routine and periodic maintenance works.

The first concession is a five-year extension for an existing concession which expires in December 2019, with a possible additional two-year extension that would extend the contract duration until 2026. The contract sum for the first two years will be about RM126.1 million.

The second concession is also a five-year extension for both routine and periodic maintenance works for agricultural roads in Perak, worth RM90.1 million in the first two years.

For both, the contract sum will be subject to review every two years during the contract period of five plus two years.