KUCHING: Pintaras Jaya Bhd (Pintaras Jaya), a construction specialist listed in the Main Market of FTSE Bursa Malaysia, has been said to be at risk of being privatised cheaply if the stock is not revised.
In making the call, OSK Research Sdn Bhd (OSK Research) observed that while the just-released financial year 2012 (FY12) headline earnings showed a moderate 10 per cent year-on-year (y-o-y) improvement, FY12 core earnings actually went up by 101.5 per cent to a record high of RM41.3 million after excluding the fair value gains/losses and realised gains/losses related to its quoted investments.
“Assuming just five per cent organic earnings growth in FY13, Pintaras Jaya will be trading at only five times FY13 price earnings ratio (PER), and only 2.5 times FY13 PER after incorporating its RM1.53 cash per share (RM122.4 million net cash as of June 30, 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 RM40 million to RM45 million core earnings.
“Moreover, it is still trading below RM2.97 FY12 net tangible asset per share. Hence, Pintaras Jaya risks being privatised cheaply if the stock is not re-rated,” the research house pointed out.
The company with a market capitalisation of RM231.5 million had declared a single-tiered final dividend of 12.5 sen, bringing total dividend for the year to 20 sen single-tier.
Because of the company’s high free cash flow business model and its strong RM122.4 million net cash position, OSK Research expected the company to maintain at least a 20 sen single-tier dividend in FY13.
This translated to a seven per cent FY13 net dividend yield at the current share price and still a five per cent net dividend yield at the research house’s RM3.99 fair value.
“Pintaras Jaya reported a RM13.1 million fair-value loss on its quoted investment in first quarter (1Q) of FY12 and this non-cash figure has distorted its FY12 earnings.
“Having adopted the newly revised Financial Reporting System (FRS) 139 in the 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 RM13.1 million 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 RM5.9 million gains on the disposal of its quoted investments in FY12,” OSK Research stated.
Due to enduring economic characteristics (in terms of increasing demand and prices for land in Klang Valley), the company’s earnings ballooned from RM8 million a decade ago to RM41.3 million in FY12, and was expected to continue growing in the coming years, the research house added.
“Its FY13 net dividend yield is expected to be seven per cent based on the current share price and still an attractive five per cent based on our fair value.
“Our core earnings estimates only include its construction and metal container manufacturing businesses, excluding any realised and fair value gains/losses on the quoted investments.
“Our fair value (RM3.99 per share) is derived from pegging the company’s 10-year average price earnings ratio of seven times on its FY13 earnings,” it said.