By Evelyn Yong

Overview
Pintaras Jaya Berhad (PTARAS) was incorporated as a limited company on 23rd November 1989 by their founder Dr Chiu Hong Keong, a civil and geotechnical engineer and successfully listed on Bursa Second Board in 1994. Then in 1998 it transferred to Main Market. Since then PTARAS has gained a solid reputation and grown as a foundations and pilings specialist leader in the Malaysian construction industry. In 2018, they acquired a Singapore-based piling contractor Pintary International Pte Ltd in Singapore and its piling subsidiaries, Pintary Foundations Pte Ltd and Pintary Geotechnics Pte Ltd to expand its footprint outside of Malaysia.
Business Model
PTARAS’s core business is in the Malaysia and Singapore construction industry with specialization in foundation and piling systems. Its range of expertise includes earth retaining systems, abasement and substructure works, ground improvement, earth works and civil engineering works with their own large fleet of top-range equipment such as drilling rigs, crawler cranes, vibro-hammers etc. Over the years, it has completed some well-known projects such as MRT (from One Utama station to The Curve station), Pavilion Hilltop, Plaza Mont’ Kiara, I-City – Central Plaza to name a few.
PTARAS also manufactures metal containers via its subsidiary Prima Packaging Sdn Bhd operating in Selangor. The company produces industrial pails and cans and has served the paint industry for 40 years with long-term clients such as Nippon Paint, Colourland and Jotun Malaysia.
Financial Review

PTARAS has a stable dividend payout over the years and maintained a dividend yield at above 7% over past 4 financial years. For FY2019 a total of 20sen per share dividend amounting to RM33,172,960 has been declared with a dividend payout ratio of 127%. Although the dividend payment amount is more than the net profit, the company’s financials is still considered healthy since it has a cash ratio of 0.737.

PTARAS managed the lowest quality of earnings at 1.16 times in FY2019 compared to 2.03 times in FY2018 and 1.33 times in FY2017 and this was due to the interest charged on borrowings and unexpected higher operating expenses. Despite the lowest quality of earning over past 3 financial years, the Quality of Earnings at more than 1 indicates that the company is still having a healthy operating cash flow.

The Current Ratio for FY2019 shows the lowest over past 3 years at 1.98 compare to 5.859 in FY2018 and 4.763 in FY2017. The decline was due to a bad debt being written off amounting to about RM1.5 million. The increasing value of bank borrowings for leasing finance on building, site equipment and investment properties as well as motor equipment were also contributing factors. However, the investment is considered important for the company’s growth and the ratio at 1.98 indicates the company is still financially sound.

PTARAS obtained the highest gross profit margin in FY2019 among past 3 years at 20.89% compared to 14.4% in FY2018 and 20.6% in FY2017. The Singapore division has contributed around 78% of the revenue with full utilization of plant and equipment while the average utilization of the Malaysia division was only about 20% for the construction part and which contributed around 11% to the revenue. The low revenue from the Malaysian construction side was a result of suspension of works involving 2 projects due to non-payments and a deferment of the commencement of a major secured contract.

The Return on Equity of PTARAS is 8.2% in FY2019 while 4.8% in FY2018 and 10.6% in FY2017. Although the unexpected expenses have trimmed the FY2019 net profit for PTARAS, the company still managed to generate a 3.4% increase compared to the previous year and generated an increase in returns for investors.

The Debt to Equity ratio of PTARAS in FY2019 shows 0.086 times and was zero previously. Generally, the benchmark ratio is at 1 and the lower the better to imply a more financially stable position. PTARAS had no bank borrowings before FY2019. In some views, a manageable borrowing is essential to help boost the company’s growth and in this case PTARAS has decided to invest in its construction assets.
Cash Flow Statement
The net cash from operating activities has provided a positive cash flow of RM27.37 million in FY2019 as compared to RM28.58 million in FY2018. The decrease in net cash from operating activities was mainly due to the increase in working capital with a RM53million in negative receivables. Even though the cash flow indicates lesser than last year, the company has enough cash to use to cover their operations.
The net cash from investing activities in FY2019 (-RM46.49 million) was mainly due to the purchases of machinery and assets as well as acquisition of a subsidiary company. The negative cash flow has shown that it is investing in the business for growth.
The net cash generated from financing activities in FY2019 (RM45.04 million) was mainly due to the proceeds from bank borrowings (RM9.5 million) and repayment of finance leases as well as borrowings (RM21.41 million).
Prospect and Challenges
PTARAS revenue in FY2019 has indicated its reliance on its Singapore operations which provided a strong contribution to the overall result. The construction sector has just started to turnaround with good job prospects after several difficult years. However, the operating environment remains tough and competitive. Overheads and labour costs are higher than previous years. In addition, the outbreak of the Covid19 pandemic has halted the progression of the construction works. For FY2019, steel prices were stable but concrete prices were up about 12%. The capital expenditure has been increasing to RM38 million as PTARAS has to rapidly expand its office, storage space and plant and equipment to meet the higher business expansion. These challenges are foreseeable to continue into FY2020.
For the manufacturing division, the revenue of RM36million improved by about 12% from FY2018 due to higher selling prices. But margins remained squeezed by higher tin plate prices averaging RM3,900 per tonne, up by about 5% from FY2018.
Rating System

Return on Equity (ROE) = Poor
Revenue [3 Years CAGR] = Excellent
Net Earnings [3 Years CAGR] = Good
Dividend Yield = Excellent
Interest Coverage = Excellent
Quality of Earning = Good
Pintaras Jaya Berhad Share Price Over 3 Years

My Insight
Based on the calculation on Discounted Earnings Model, PTARAS has an intrinsic value of RM2.40. The current share price of PTARAS is RM2.62 which makes it a fair-valued stock (as at 25 Jun 2020). It has a beta of 0.868 (500 days) indicating that the share price is less volatile than the current market. However, the value is close to 1 indicating it is just slightly behind the market. Based on the computation of Capital Asset Pricing Model (CAPM) on 10 years period, PTARAS has an expected market return of 1.412%.
On the dividend prospect, although PTARAS has maintained a dividend yield of above 7% over the years, in latest 2Q of FY2020, the company has announced a dividend of 4sen per share which is lower than previous years. As with most other companies, PTARAS too has been pressured by the lockdown due to the pandemic crisis. The stoppage in construction works in Malaysia and Singapore is expected to affect the revenue of FY2020. Hence the company will need to depend on sound financials and a strong management to help endure this FY. However for the long-term view, PTARAS still has a good outlook as it has secured in its order book a few big projects in both Malaysia and Singapore. As such the earnings outlook over the next 2-3 years remains positive on the back of its high-quality work and operational efficiency.
Disclaimers
The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information in this article. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.