Jury still out on Protasco’s RE venture
Shalini Kumar 
Protasco is considering expanding its business into solar power & renewable energy, a move that may help boost its flat earnings

Protasco Bhd, which has faced declining earnings lately, is looking at expanding into solar power and renewable energy (RE) to broaden its income base. However, the move is unlikely to have any impact in the short term.

Having established itself in the construction, concessions and property development sectors, the proposed move into RE is seen as a sharp turn away from its areas of expertise. This raises the question of whether it is a wise move for the group.

The company was also reported to be considering expanding into hydropower infrastructure and waste and wastewater management.

One fund manager tells FocusM the RE venture could be a positive one for the group. “It will definitely be something very different but will provide a stable cash flow. However, I think they are still at the stage of exploring possibilities first,” he says.

“At the moment, I think they will likely focus on their construction business and possibly bidding for government projects,” he adds.

On Oct 9, Protasco’s wholly-owned subsidiary Ikram Greentech Sdn Bhd said it had bought two shares or 100% of dormant company Ikram Infra Bina Sdn Bhd, which will be known as I2 Energy Sdn Bhd, for RM2.

Under the group’s proposed internal restructuring, I2 Energy is intended to undertake a new energy business, and will eventually increase its paid-up capital from RM2 to RM100,000. Ikram Greentech will own 50,998 shares or 51% stake in I2 Energy while Icon Energy Solutions Sdn Bhd and KI Engineering Sdn Bhd will hold 45% and 4% stakes respectively.

In a recent report, Malacca Securities says it is neutral on the acquisition as there will be no financial impact for the time being, given that I2 is still a dormant company.

“Nevertheless, we reckon the addition of new energy business could improve the group’s profitability upon its operation, but the earnings are likely to be dominated by the existing construction, concession and property development divisions,” it says.

There has been a growing push to meet Malaysia’s energy demands through renewable sources, with the government introducing various incentives and strategies to encourage the growth of the sector.

The Energy, Green Technology and Water Ministry has targeted to achieve renewable energy generation of 30% nationwide within the next eight years. So far, 22.5% or 6,500 MW of renewable energy has been generated via a mix derived from solar, biomass, biogas and mini-hydro sources.

Protasco declined an interview request from FocusM.


Recovery in second half

Analysts are positive on the group’s prospects going forward, despite weaker earnings in the second quarter.

For Q2 ended June 30, it saw a 45% decline in net earnings to RM7.9 mil, from RM14.4 mil a year ago. Revenue was also lower at RM219.8 mil from RM396.2 mil a year before.

The decline in earnings came from lower overall profits across most of the group’s divisions, except engineering services, which recorded a 6% increase in pre-tax profit for the six-month cumulative period, mainly due to additional pavement evaluation works in collaboration with highway concessionaires.

HLIB Research says the lacklustre results were expected, with the research house remaining hopeful of a recovery in the second half. “H1 earnings made up 31% of our full-year forecast. We regard this to be in line given our projection for an earnings recovery in H2,” it says. HLIB is maintaining its “buy” call on Protasco, with a target price of RM1.20.

Meanwhile, AmInvestment Bank Research has initiated coverage on Protasco with a “buy” call and a fair value of RM1.33.

“We project its FY18/19 earnings to grow by 24%/8% underpinned by a strong outstanding road maintenance concession order book of RM4.2 bil, strong earnings visibility over the long term from the road maintenance concession which will last till FY26, and potentially new affordable housing projects.

It said Protasco could potentially secure other highway and infrastructure development projects that are coming up for tender under the 11th Malaysia Plan given its vast experience and expertise in construction and engineering.

The research house adds the group is well positioned to benefit from the next upcycle in the property market via more aggressive launches from its mixed development project, De Centrum, in Kajang.

To date, two phases of the project have been completed, namely the shopping mall with a gross development value (GDV) of RM280 mil and Unipark Condo with a GDV of RM220 mil.


A better 2018

Prostasco says it foresees 2018 being a better year, as it is confident in securing a relatively “big tender” which would help its earnings grow.

Managing director Datuk Seri Chong Ket Pen reportedly says the project will be in the construction space.

Looking ahead, the group has said that it will bid for construction projects from various segments, such as highways and infrastructure projects, Perumahan Penjawat Awam 1Malaysia Phase 4, and building and housing projects under the “build-lease-transfer” model.

Its outstanding construction order book stands at about RM600 mil as of June 30 this year.

As for its property division, Protasco plans to launch lifestyle studio apartments in De Centrum, with a combined GDV of RM550 mil, by the second half of next year.

As for its maintenance division, Protasco is the largest of the three federal road maintenance concessionaires in Peninsular Malaysia. Via 51%-owned Roadcare (M) Sdn Bhd, it controls the central and eastern regions covering Selangor, Pahang, Terengganu and Kelantan.

Its contract via Roadcare was renewed until 2026 and is expected to be the main driver for earnings this year.

This article first appeared in Focus Malaysia Issue 259.