This article first appeared in The Edge Financial Daily on April 8, 2020

Pintaras Jaya Bhd
(April 7, RM2.51)
Maintain buy with a lower target price (TP) of RM3.20: Thus far, contributions from Singapore have been backed by an outstanding order book of RM330 million. Pintaras Jaya Bhd had continued to be on the lookout for fresh contracts, with a tender book of RM3.3 billion as at December 2019. Its venture into Singapore looks promising now even as the local construction outlook disappoints. Its valuation remains attractive, trading at just eight times forecasted financial year ending June 30, 2021 (FY21F) earnings per share (EPS) (-1.5 standard deviations [SD] from the five-year mean).

Based on an announcement on Bursa Malaysia, the Singapore government is closing all workplaces, except for those of essential services, from today to May 4. Notably, non-essential activities include construction, which means all activities on construction sites will be shut down. We understood from the company that necessary steps had been taken to reduce expenditure during the period, including the off-hiring of all of its rental equipment and tools on construction sites.

Nevertheless, opportunities in Singapore remain aplenty, allowing Pintaras Jaya to actively bid for new jobs as reflected in its sizeable tender book of RM3.3 billion. Year to date (YTD), with the company securing new construction orders valued at a total of S$119 million (RM366 million), its outstanding order book is worth RM446 million. Of this, we note, around 80% of the value is derived from jobs in Singapore.

We adjust our earnings forecasts for Pintaras Jaya for FY20 to FY22 by -14%, -5% and -5% respectively after taking into account the temporary disruption to its work progress. The new forecasts impute slower progress billings and lower net margins for its existing orders. We roll over our base year to FY21 in order to better reflect its valuation one year from now. We derive our new TP of RM3.20, lowered from RM3.31 previously, from pegging 12 times target price-earnings ratio (close to -1SD from the five-year mean of the Kuala Lumpur Construction Index) to FY21F construction EPS.

Key downside risks include failure to secure new contracts, more intense competition among piling contractors, and a prolonged downturn in the retail and property markets. — RHB Research Institute, April 7