News

• New concession sealed in Sarawak. Protasco announced that its 30% associate, DAL-HCM has entered into a concession agreement with the Federal Government for the maintenance of Federal Roads in Sarawak. Under the concession agreement, DAL-HCM is granted the right to undertake both routine and periodic maintenances as well as emergency works on 751km of Federal Roads in Sarawak for a period of 10 years commencing 1 Sept 2018.

Comments

• Existing concession to expire soon. To recap, Protasco currently has a 15-year concession (100% stake) to maintain Federal Roads in Sarawak which will soon expire in Aug 2018. As such, this new concession (via DAL-HCM) should help assuage concerns on its current concession expiry.
• Lower stake but longer length. While Protasco’s stake in this new concession has been reduced from 100% to 30% (i.e. from a wholly owned subsidiary to an associate), we feel that this will be somewhat compensated by the longer length of roads to be maintained. This new concession stipulates 751km of roads to be maintained, which is 2x the length of its existing concession’s 373km.

Risks

• Low orderbook replenishment.

Forecasts

• Unchanged as we have already assumed that its existing concession would be extended.

Rating

• Maintain HOLD, TP: RM1.14
• While we like Protasco for its defensive qualities of its road maintenance business, we feel that this may be insufficient to significantly cushion the downside from its cyclical construction and property segments.

Valuation

• Our TP of RM1.14 is based on 12x FY18 earnings.

Source: Hong Leong Investment Bank Research - 15 Feb 2018