Protasco eyes RM1 bil market cap

  • Chong: Since 2012, our revenue and profit have been growing at about 15% to 16%
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This article first appeared in Corporate, The Edge Malaysia Weekly, on July 25 - 31, 2016.


PROTASCO Bhd, which is bidding for one of the work packages of the Pan Borneo Highway in Sarawak, aims to grow its market capitalisation to RM1 billion in the next two to three years.

The integrated engineering and infrastructure diversified group has been growing rapidly from a small-cap company to mid-cap over the years, says  Datuk Seri Chong Ket Pen,  the managing director and executive vice-chairman. Now, he wants to take it to the next level — the billion-ringgit league.

“Since 2012, our revenue and profit have been growing at about 15% to 16%. If we continue to register such double-digit growth, our market cap should hit the RM1 billion mark between 2018 and 2020,” he tells The Edge.

Year to date, Protasco’s share price has gained 2.5% to close at RM1.65 last Thursday, giving it a market cap of RM557.1 million. The stock is currently trading at a price-earnings ratio (PER) of eight times, but Chong believes it should be valued at 14 to 15 times.

“The share price always comes with profit. If I can double our profit to more than RM100 million in the next two to three years, and with a PER of 12 times, we can easily achieve that [RM1 billion market cap] before we reach the next decade,” he says confidently.

Chong, 61,is the founder and substantial shareholder of Protasco with a 13.71% direct stake and a 9.27% indirect stake as at June 16, 2016. A road pavement specialist with extensive experience in the design, construction and maintenance of roads, he left the public sector to set up Protasco in 1991.

Chong is optimistic that Protasco will get a slice of the pie from the Sarawak side of the Pan Borneo Highway mega project. The group is tendering for a work package worth more than RM1 billion via its construction arm — HCM Engineering Sdn Bhd.

“We are one of the bidders for the central portion of the highway project near Miri. We should know [the outcome] by this year,” he says, adding that HCM Engineering has identified a local bumiputera partner in Sarawak.

“This will be a 30:70 joint venture (with HCM taking 30%), but under EPC (engineering, procurement and construction), we will do the main job. It is going to be one of the big things for us because the profit margin is expected to be quite decent at around 5%,” he explains.

He says Protasco has more than a 50% chance of securing the contract as it already has a presence in Sarawak through its engineering consultancy firm, Kumpulan Ikram Sdn Bhd.

“I think we have a good chance because we have built roads in Sarawak before. In fact, we also have maintenance offices in Miri and Bintulu, while Kumpulan Ikram has been there for more than 20 years. I know the conditions and pricing there very well ... we can handle this,” he says.

If Protasco does get a piece of the action from the Pan Borneo Highway project, the financial contribution to the group would only be seen from next year as it takes about three to four months for land acquisition and site possession after the work package is awarded.

Protasco returned to the black in its financial year ended Dec 31, 2015 (FY2015), with a net profit of RM66.75 million compared to a net loss of RM46.44 million in FY2014. Its revenue has surpassed the RM1 billion mark for two consecutive years.

The net loss in FY2014 was mainly due to one-off impairment losses of RM103.547 million for its investment in oil and gas and trade coal deposit and advance.

To recap, Protasco was embroiled in a corporate tussle with businessman Datuk Larry Tey Por Yee in September 2014.The company filed suit against Tey and PT Anglo Slavic Utama in relation to the proposed acquisition of a 76% stake in PT Anglo Slavic Indonesia for US$55 million in late 2012. The Indonesian asset deal was subsequently aborted, and Tey ceased to be a substantial shareholder of Protasco in April this year, after disposing of 3.45 million shares.

Today, Kajang-based Protasco has put the focus back on its six business segments, namely road maintenance, construction, property development, engineering consultancy and services, education, as well as trading and manufacturing — all of which are profitable. 

In the first quarter ended March 31, 2016 (1QFY2016), the company reported a net profit of RM13.35 million on revenue of RM127.1 million.

Going forward, the construction and property development divisions will remain the twin engines of growth, while the road maintenance unit will continue to generate a solid income stream and strong cash flow.

Chong says Protasco has an outstanding construction order book of close to RM700 million, which can easily keep it busy for the next two years. On top of that, it is also bidding for RM5 billion worth of jobs.

“For the past few years, we have been quite successful in securing at least RM500 million order book replenishment a year. If we have one big job coming in, it should be more than that,” he says.

On the property development business, Chong says Protasco remains focused on its maiden township project, De Centrum City, which has an estimated gross development value (GDV) of RM10 billion.

The integrated mixed-use development, comprising high-rise apartments, shop offices, SOHOs convention centre, hotel and office suites, will be developed over the next 15 to 20 years.

The group plans to launch Rimbawan Residences @ De Centrum, a premium residential development with a GDV of RM350 million, in August or September.

“Rimbawan consists of high-rise condominium units and exclusive villas. It was supposed to be launched last year but we delayed it for eight months because of the slowdown [in the property market}. So far, we already have 40% bookings, so we are not worried,” says Chong.

On its road maintenance division, he expects it to continue to positively impact the company’s bottom line and generate an annual revenue of RM300 million to RM400 million. “The federal roads are more or less saturated and we managed to maintain our portion. But for the state roads, we will continue to bid for jobs. The [maintenance works contract for] Terengganu state roads is expiring this year.”