25 August 2017, Kajang, Selangor, Malaysia - Construction and largest JKR contract dependance public listed company Protasco Bhd saw the year to year Quarter 2 net profit further plunge 45% from RM14.36mil to RM7.9mil, and cash and cash equivalents at the end of financial year plunge a jaw dropping 81.7% from RM32.9mil to RM6mil.
Revenue year to year drop from RM396mil to RM219mil, net profit margin crashed to just 3.6%. Total liabilities improved to RM696mil, with bank borrowing of RM346mil. Net asset per share stood at RM0.9475. Notable financial highlights as follows:
Bank Borrowed Cash Balance?
In order to keep the "cash and cash equivalents" stays positive at RM6mil, the company had increased bank overdraft from RM19.98m to RM47.31m Y-to-Y, or increase of 236%.
Inflated Net Profit, Where It Comes From?
Exclude "extra-ordinary" accounting adjustment in property development division amounted to RM3.89m, net profit would only fetch RM4.01m (*1).
(*1. Q2'17 report, Note 14, page 7: For the period ended 30 June 2017, the revenue for Property Development segment decreased significantly mainly due to the completion of all development projects and deferment of new projects given the softening of the property market. Accordingly, PBT decreased by 24%. PBT for the current quarter increased more than 100% as compared with preceding year corresponding quarter due to reversal of development expenditure from previous completed projects.)
Construction segment revenue and PBT decreased by 46% and 67% respectively for the period ended 30 June 2017, mainly due to cost overrun for certain ongoing infra projects, completion of PPA1M Phase 1 in the 1st Quarter of 2017 and delay in commencement of PPA1M Phase 2.
Change of Substantial Shareholders
Last quarter saw the exit of fund managers including Great Eastern Holdings Limited and OCBC despite management promised better results quarter after quarter since year 2014 until today, and borrowed money to keep up with dividends. EPF however took up bulk of the shares sold by fund managers, likely linked to certain unhappy investors. EPF further purchased the shares riding on share price down trend. As of todate (25 Aug 2017), EPF held 36,040,340 shares, or close to 8.49%. EPF seems to be very pleased with the declining share price and likely to continue pair down the investment if the price continues to break new low.
Where the Money Really Goes?
Recall the hidden cost & benefit changes year to year in Q1'17, where profit attributable to "Equity holders of the Company" drop from RM13.3mil to RM3.3mil, and "Non-controlling Interests" had ballooned from 16.9% to 34% of total profit, or RM2.7mil to RM1.7mil year to year, which is a significant 100% increase of "money out flows" to parties outside of Protasco. This quarter saw similar trend, where "Non-controlling Interests" stood at 31.6% of total profit, which means the bulk money out flow is here to stay permanently.
Analysts which had been following Protasco since year 2014 under Chong Ket Pen stewardship, saw the vanish of cash flows and thinning profit margin across all sectors, including road maintenance, construction and property development.
Trailing Q1'17 until Q2'17 there is no sign of better profit margin, which means the low margin environment is likely to stay, especially with the roll over of low margin projects using new debt to covers old debt, raising red flag among fund managers whether or not to continue betting on the low cash flow businesses. Such environment might affect Protasco future earnings and sustainability, especially vulnerable to material cost and variation risk especially in construction sector. There is extra political factor haunting this government project dependence company especially towards General Election.
Protasco had not much room for dividends for this quarter, after last quarter eke out of 3 Sen dividends, or RM12,726,342, using borrowed money. Over the years of borrowed-money-dividend policy, 1/4 of Protasco money shall goes to single largest shareholder Chong Ket Pen. Such cash out flow is about 212% of cash and cash equivalents on hand as of 30 June 2017 (Q2).
Such borrowed-dividend had been intensified since year 2014. Here is the last 3 years result card pertaining to "where the money goes" based on the Y-to-Y performance for year 2014, 2015 and 2016 as follows (RM):
Cash & Short Term Investments 285m 256m 211m
- Latest Q2'17 Cash balance stood at 6m
Total Current Liabilities 448m 538m 877m
Total Debt 187m 337m 557m
Total Liabilities 593m 849m 996m
Source: Financial Times
Quarterly rpt on consolidated results for the financial period ended 30 Jun 2017
|Financial Year End||31 Dec 2017|
|Quarterly report for the financial period ended||30 Jun 2017|
|The figures||have not been audited|
|Company Name||PROTASCO BERHAD|
|Date Announced||25 Aug 2017|