While the just-released FY12 headline earnings showed a moderate 10% y-o-y improvement, FY12 core earnings actually up by 101.5% to a record high of RM41.3m after excluding the fair value gains/losses and realised gains/losses related to its quoted investments. Assuming just 5% organic earnings growth in FY13, Pintaras Jaya will be trading at only 5x FY13 PER, and only 2.5x FY13 PER after incorporating its RM1.53 cash per share (RM122.4m net cash as of 30 June 2012) into the valuation. Essentially, it means that whoever privatises Pintaras Jaya at the current market value would be able to own the company for free in three years, if it maintains RM40m-RM45m core earnings. Moreover, it is still trading below RM2.97 FY12 NTA/share. Hence, Pintaras Jaya risks being privatised cheaply if the stock is not re-rated.
20 sen single-tier dividend declared for FY12. The company declared a single-tiered final dividend of 12.5 sen, bringing total dividend for the year to 20 sen single-tier. Because of Pintaras Jaya’s high free cash flow business model and its strong RM122.4m net cash position, we expect the company to maintain at least a 20 sen single-tier dividend in FY13. This translates to a 7% FY13 net dividend yield at the current share price and still a 5% net dividend yield at our RM3.99 fair value.
Non-cash fair-value losses pushed down FY12 earnings. Pintaras Jaya reported a RM13.1m fair-value loss on its quoted investment in 1QFY12 and this non-cash figure has distorted its FY12 earnings. Having adopted the newly revised Financial Reporting System (FRS) 139 in 1QFY11, the company is required to reflect value changes on its quoted investments as “fair value gain/loss on financial assets at fair value through profit or loss”. The RM13.1m recorded in 1Q represented the q-o-q decline in the market value of its quoted investments and did not necessarily indicate unrealised losses. In fact, the company realised RM5.9m gains on the disposal of its quoted investments in FY12.
The long-term durable competitive advantages. Ten years ago, Pintaras Jaya recorded about RM8m earnings when there was an abundance of strategic landbanks in Klang Valley. As the land in Klang Valley becomes scarcer and more expensive, demand for high rise commercial and residential buildings is expected to escalate. Because of these enduring economic characteristics, the company’s earnings ballooned from RM8m a decade ago to RM41.3m in FY12, and is expected to continue growing in the coming years.
The stock should be re-rated. Pintaras Jaya is trading at only 5x FY13 PER, and only 2.5x FY13 PER after incorporating its RM1.53 cash per share (RM122.4m net cash as at 30 June 2012) into the valuation. Its FY13 net dividend yield is expected to be 7% based on the current share price and still an attractive 5% based on our fair value. Our core earnings estimates only include its construction and metal container manufacturing businesses, excluding any realized and fair value gains/losses on the quoted investments. Moreover, it is still trading below its RM2.97 FY12 NTA/share. We think Pintaras Jaya should be re-rated not just for its attractive valuation but also because it: (i) is among the nation’s largest companies involved in piling, earthworks and substructure works (ii) is a reputable company that has been involved in iconic projects such as Pavilion, St. Regis, Marc Residence, Setia Walk, etc; (iii) has been profitable every year since FY95, except in FY01; (iv) has been reporting RM10m-RM41.3m in core earnings for the past eight FYs; (v) had RM122.4m in net cash/cash equivalent as at 30 June 2012 and no borrowings; (vi) is running a high free cash flow business; (vii) has dividend payout ratio of >37% since FY09. Our fair value is derived from pegging the company’s 10-year average PER of 7x on its FY13 earnings.
Source: OSK
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