Can Protasco recover?

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PROTASCO BHD and its executive chairman-cum-managing director Datuk Seri Chong Ket Pen have been in the limelight of late because of disputes with the company’s investor and non-independent non-executive director, Tey Por Yee.

The wave of claims and accusations by both sides has raised concerns over whether Protasco’s management will be distracted by the ongoing tussle, and if it will be able to recover the amount paid for the purchase of PT Anglo Slavic Indonesia (PT ASI) — a hefty US$27 million (RM90.78 million).

In an interview with The Edge, Chong assures that the dispute is only at the corporate level and the company will concentrate its efforts on recovering the losses.

“Whatever I do, I think of the shareholders’ interest. We have enough evidence, so we hope, to a certain extent, we can recover,” he says.

To recap, Protasco had in late January this year entered into an amended sale and purchase agreement (SPA) for the purchase of a 63% stake in PT ASI from its parent company, PT Anglo Slavic Utama (PT ASU) for US$22 million. The company had proceeded with the SPA by paying the full sum and an additional advance of US$5 million to PT ASI for the exploration, well reactivation and construction works at its oil fields in Aceh, Indonesia.

In late September, Protasco filed a suit against PT ASU, Tey and the company’s non-executive director Ooi Kock Aun, for the refund of the purchase price and damages incurred from the acquisition of PT ASI.

“I want to emphasise here that whatever that is happening will not affect cash flow… because whatever acquisitions that we had done, we did from our reserves. We didn’t borrow to pay so our provision does not affect our cash flow and business,” says Chong.

However, a note by Mercury Securities says that although the company’s existing business operations are unaffected by the legal suits, there are uncertainties over the recovery of the US$22 million acquisition price, which may necessitate an impairment loss.

“The one-off impairment cost could result in the company reporting a loss in 2014 results, depending on the advice of its auditors, but we expect sentiments on the stock to be affected in the interim,” the note says.

The research house has a target price of RM1.80 for Protasco and has downgraded its call to “hold” from “buy” previously.

Protasco rebounded from a low of RM1.42 in mid-October, when lawsuits started piling up, to close at RM1.65 last Thursday, giving it a market capitalisation of RM553.2 million.

Chong adds that for the time being, Protasco has shelved its plans of venturing into the oil and gas sector as crude oil prices have dipped below US$80 per barrel.

“I want to concentrate on what we have now. The six disciplines that we have can generate very good (revenue) for us,” he says.

The six business divisions of Protasco are maintenance, construction, property development, engineering and consultancy services, education, and trading and manufacturing.

Protasco’s growth is largely hinged on its construction and property development divisions. The company has an order book of RM700 million, 80% of which is from its property development division, while the remaining 20% comes from its road construction and maintenance business.

“Maintenance will give us a very strong cash flow and give us good turnover that is recurring,” he says.

The company may see a pickup in roadwork projects as it has restarted its activities in Libya, which were halted two years ago due to geopolitical uncertainties. Roads and bridges that were damaged as a result of the conflicts are now being mended.

It is currently in negotiation for a RM40 million bridge repair contract there and is working on a RM10 million job to salvage another bridge.

Closer to home, Chong says the company has expressed interest in the Pan Borneo Highway project which is said to be worth some RM27 billion. The highway will span 936km in Sarawak and 727km in Sabah.

On Protasco’s property arm, Chong says the company will be launching its De Centrum project on a staggered basis of about RM300 million worth of launches a year over the next 10 to 15 years.

Chong says the initial plan was for the development to be launched for RM500 million a year, but due to the property cooling measures by the government, the company has postponed office launches to concentrate on residential units instead.

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De Centrum is a 100-acre mixed-use development in Kajang with a gross development value of RM10 billion. Phase 2A of the project, comprising a 20-storey condominium, was launched in June.

Protasco is currently sitting on 120 acres of landbank spread across Kajang, Iskandar and Sandakan, and the company is planning to increase its acreage.

“My people are valuating a piece of land in Penang and we are also valuating its potential because there was a proposal for a joint venture. There is another piece of land nearby for an outright sale, where all the development plans have been approved.”

On its land in Johor, Chong says currently the company has no intention to develop it, while plans for its Sabah land have been postponed owing to the security measures implemented for the Eastern corridor.

Protasco saw an increase in net profit of RM26.80 million for the six months ended June 30, 2014, compared with RM19.76 million a year earlier. This was achieved on the back of RM348.68 million in revenue, a climb from RM330.73 million a year before.

Notes to the results show that the company’s construction and maintenance divisions contributed to the bulk of its revenue with RM23.75 million and RM92.01 million respectively, while its property front contributed RM21.79 million.

This article first appeared in The Edge Malaysia Weekly, on November 24 - 30, 2014.