Why I Like Protasco - The Next Mudajaya?

Mudajaya had a ballistic 6 months run up, and thats largely due to their moving up a level from plain construction into power plants business. Mainly they have expanded overseas successfully. Protasco is a bit like Mudajaya albeit 2-3 years behind. Its construction business is solid with 3 concessions, and they have ventured successfully into education, much like KPJ, where they have put a platform to train those in the same industry. The education segment makes up about 15% of revenue and is a good human resource management feeder system as well.


Protasco is principally engaged in the business of investment holding. The principal activities of the subsidiaries are road construction, rehabilitation and maintenance, property development, educational services, site investigation and soil testing services, investment holding and rental of machinery. Protasco's main subsidiaries are involved in the provision of road construction, rehabilitation and maintenance.

Protasco's main and wholly owned subsidiary HCM Engineering Sdn Bhd is engaged the provision of road construction, rehabilitation and maintenance. HCM has been registered with Construction Development Board and it has also been awarded with the G7 license. HCM is able to tender for projects of unlimited value, the company is also able to involved in activities, such as civil engineering construction, specializing in road pavement construction and general civil engineering works.

Kumpulan Ikram Sdn Bhd (KISB), another main and wholly owned subsidiary of PRTASCO is involved in the provision of training, geotechnical laboratory, structural and material testing activities. In addition, PRTASCO holds a 15 years concession to provide the government with a range of services including geotechnical consultancy, forensic engineering, structural and material testing.

The company's main assets are three 15 year concessions. The first is a federal road maintenance concession covering 6,200km in the states of Selangor, Pahang, Kelantan, and Terengganu expiring in 2016. The second is a federal road maintenance concession for 420km of roads in Sarawak expiring in 2018. The third concession expiring in 2011 involves providing the engineering services of the privatized Ikram group. Protasco’s outstanding order book derived from the concessions stands at 73% or RM1.6b while the remaining RM567m was derived from projects on hand like road rehabilitation, slope testing, and other similar stand alone projects. The company also provides emergency works to infrastructure damaged by landslides and floods.

The company’s business model does not require large amounts of capital. The biggest capital expenditure is spent on road construction equipment which even when fully depreciated over 8 years, still retains good secondary market value. Although their current contract with JKR Selangor to maintain 3,521 kilometers of state roads was secured before March 8, 2008, the new Selangor government did not exercise its right to rescind Protasco’s contract.





For the 2Q ended Sep 09, they made a net profit of RM15.6m, or a cumulative 9 month net profit of RM45.6m, making them on track to post a net profit of at least RM60m for 2009... or a net EPS of at least 13.5 sen. The company has been able to win both long term concessions and subcontracted works because the company emphasizes the quality of its work. They use high quality materials and more crucially maintains a specialist engineering division. The division undertakes intensive in house research into the soil conditions of the sites where work is being done, in order to formulate the optimum mixture of materials to suit a site’s unique properties. The result is a road pavement that is cost efficient and longer lasting when compared against their competitors.




Protasco’s business does not require heavy capital commitments. The company typically commits 5% of new project values in reserves. The low capital requirements and selection of low credit risk customers have led to a healthy balance sheet. As of June 2009, Shareholder’s Equity stood at RM387.18m against total Liabilities of RM248.87m. Net debt to Equity was -21.4%.

Just like Mudajaya, the company is expanding their reach. The company currently has maintenance projects in Libya and is bidding for a toll project in Syria. They prefer seeking more projects from the two countries rather than regional ones because the governments of those two countries are more reliable paymasters. Other future infrastructure work relates to municipal waste water treatment in China where Protasco would team up with a water technology provider and operate treatment plants. The company already operates a stone quarry in China.

The recent surge in volume may be an indication that something big is brewing in the books. It has fallen back from a high of RM1.16 and looks a sound bet going forward. Even ascribing a 10x current PER (which is low), the stock should be fairly valued at RM1.35. I expect some good corporate developments soon from this under leveraged, and well manged company. The present market weakness has sent the shares back to RM1.00 and should be a good level to pick up.

The other thing I like is that they have paid out about 60% of profits every year, amounting to 7-8 sen. It show to me that the main shareholders are willing to live off the dividends while growing the company. If you look at their paid up which 289m shares, some 63% are in long term shareholders. A very good sign. Both the founders were from JKR and they have made strong inroads with their expertise, now to the next level.

Shareholders (percentage ownership)

Updated: January 12, 2010

Dato Ket Pen CHONG	13.39%
CIMSEC Nominees (Tempatan) Sdn. Bhd. (BC Trustee Advisory for Hasnur Rabiain bin Ismail (PB))	13.12%
Onn Neo YAP	10.39%
Dream Cruiser Sdn Bhd	9.86%
Lembaga Tabung Haji (TH)	8.99%
Max-Three Sdn Bhd	7.74%

The company was started by two JKR stalwarts. Dato’ Hasnur Rabiain Bin Ismail is the Executive Chairman of Protasco Berhad. He was appointed as a board member on
15 May 2001.He obtained his BSc (Hons) degree in 1980 and his MPhil (Civil Engineering) in 1990 from United Kingdom’s Middlesex Polytechnic and the University of Birmingham respectively. The co-founder of Protasco Group has been a member of the Malaysian Institute of Engineers for almost 17 years. Since 1994, he has been a Professional Engineer registered with the Board of Engineers, Malaysia. Starting his career as Road Design Engineer at Jabatan Kerja
Raya (JKR) Ipoh in 1980. In 1988 he assumed the position of Senior Engineer, Pavement Unit of the then JKR’s Institut Kerja Raya (IKRAM). In 1991, he joined forces with Dato’ Chong Ket Pen, laying the foundation for the formation of Protasco Group.

In March 2009, Dato’ Ir Hasnur was appointed as a member of the World Road Association (PIARC)’s Commission on Technological Exchanges and Development (TED Commission) for the period 2009 – 2012.

Dato’ Chong Ket Pen is the Managing Director of Protasco Berhad. A co-founder of Protasco Group, he was appointed as a board member on 15 May 2001. Following a BEng (Hons) degree from the University of Malaya in 1979, he obtained his MPhil (Civil Engineering) degree from the University of Birmingham, United Kingdom in 1990. In 1987 he registered as a Chartered Engineer with the United Kingdom’s Engineering Council. His career began in 1979 with his appointment as Road Design Engineer cum Assistant Project Engineer at JKR Kelantan. Promoted to the position of Project Engineer in 1982, he later became Senior Engineer at the Design and Research Branch of the JKR Headquarters. He was assigned
as Senior Pavement Research Engineer at Institut Kerja Raya Malaysia (IKRAM) in 1988, and subsequently as Senior Engineer, Pavement Evaluation and Research. In 1991, he joined forces with Dato’ Hasnur Rabiain Ismail, and founded Protasco Group.


p/s photos: Keiko Kitagawa

Jim Rogers Views Summarised - Oct 11th

Just an update on Jim Rogers and his views. This being his latest on his lecture circuit:

1. The 21^st century belongs to China

According to Rogers, the 19^th century was the era of the British Empire and the 20^th century was the U.S.’ heyday. But the 21^st century is China’s (though the rest of Asia is definitely going to get a boost too).

The reasons for this are many, but some points brought up by Rogers include the following:

1. The Chinese want to live like we do;
2. They are more eager to work;
3. They are better at saving;
4. There are 1.5 billion Chinese citizens (and 3 billion people in all of Asia), and we owe them money. They are, according to Rogers, “among the best capitalists in the world.”

There will be some setbacks, of course, Rogers says, but these are opportunities. “If you see setbacks in China, you should pick up the phone and get more involved,” he advised, before adding his favorite refrain, “The best advice of any kind that I can give you is to teach your children and grandchildren Chinese.”

China’s path to world domination started with Deng Xiaoping’s capitalist programs in 1978, and there hasn’t been any looking back since. Rogers views China’s dominance as nigh-on unstoppable except for one little thing: its water problem. There are parts of the country that are running out of water, and when the water disappears, Rogers points out, so does civilization. However, the country is acting aggressively to combat the problem, and he doesn’t view it as that much of a threat.

2a. Jim Rogers is not a Ben Bernanke fan

Yep, it’s a fact. No “Team Bernanke” shirts for Jim Rogers (who said to scattered applause during the Q&A session that if he was in charge of the U.S. economy he would “abolish the Fed and resign.”).

Rogers is appalled by the government’s actions—Bernanke’s in particular. The U.S. government’s strategy calls for the debasement of the dollar, he says, calling it a “horrible policy.” While he concedes it can work in the short term, it NEVER works in the mid- or long term.

“He’s going to run those printing presses until we run out of trees, because that’s the only thing he knows,” Rogers said of Bernanke.

Add that on top of the country’s rapidly growing astronomical debt, and Rogers believes you’ve got a recipe for disaster.

2b. The U.S. dollar is screwed

Consider this a corollary to point 2a. Its status as a reserve currency is teetering on a precipice, in Rogers’ opinion, and he’s not alone. In fact, so many people are selling dollars right now that he’s sitting tight, waiting for a possible—and ultimately unsustainable—rally in order to exit the market. Of course, if it fails to rally and just drops again …

“I’ll just have to panic and sell like everyone else,” Rogers said.

3. Commodities, commodities, commodities

OK, as mentioned before, there are 3 billion people in Asia, most of whom are aspiring to play the home version of the American Dream game show. And let’s face it: American society is largely about consumption. We like stuff―we buy it, we wear it, we eat it, we flaunt it, we sometimes even bedazzle it (yeah, Google that). So that’s a lot more consumption on the global level. Rogers notes that while consumption is expected to increase exponentially, not a lot of capacity has been added in the last few decades for a lot of commodities. Meaning, not a lot of new refineries have been built, and not a lot of new resources have been discovered or excavated for a variety of commodities.

In terms of oil, Rogers cites the fact that Saudi Arabia has not seen any new oil discoveries but has consistently said for the past two decades that its reserves are at 260 billion barrels (in which time it has sold 60 billion barrels). He also points out that farmers are a rapidly disappearing species. So to sum up―that’s a lot more people competing for diminishing resources (including the all-important energy and food). Basic supply and demand theory pretty much takes it from there.

“Commodities are the second-largest asset class in the world,” Rogers noted. And they are “the best anchor” for your portfolio, he adds.

Rogers says the typical life span of a commodities bull market is 18-20 years. We’re currently in year 11 right now. Yeah, it could end tomorrow, but that whole supply and demand imperative could also extend this bull beyond its typical time frame.

During the Q&A session, though, the conversation took a darker turn. One questioner asked if the increased competition for resources might lead to war, and Rogers allowed it was a possibility, though he hoped it would not come to that. He pointed out that when a rising power clashes with an established power, the result is usually war, and said that research consistently shows that resource shortages lead to war.

So, sure, commodities shortages might start World War III, but if you invest in the commodities themselves, you might at least be in decent financial shape when the shelling stops—and I’m not being flippant at all. War drives up the costs of commodities.

4. U.S. government bonds are the next big bubble

Well, would you lend money to us? Rogers says short-term bonds are probably OK, but he advises getting out of anything with a longer maturity. He calls it “inconceivable” that anyone would lend money to the U.S. for 30 years at the going rate, and notes that the U.S. was a creditor nation as recently as 1987.

“Now the U.S. is the largest debtor nation in the history of the world,” he said.

And for bond portfolio managers, he had some very pointed advice: “Get a new job.”

5. Protect yourself

The underlying theme of Rogers’ entire speech was that the world is changing, and here are some things you should know if you want to come out the better for it (and for your family members, clients, etc., to also come out the better for it) financially. Based on Rogers’ observations, it seems recognizing that change is a key step, but so is adapting to it (see advice regarding learning Mandarin, for example).

And in Rogers’ eyes, commodities are a good way to achieve this protection. No investment is certain of course, but right now, he thinks commodities look pretty darn good.

Best Comment Of The Night

Addressing one audience member’s question, Rogers asked if the young man were an MBA. The questioner admitted to holding an MBA and was promptly told he should swap his MBA for an agriculture degree from Texas A&M.

“You should become a farmer,” Rogers said.

That’s an old line for Rogers, but he added a new wrinkle. If you’re not going to become a farmer, you should open the first Lamborghini dealership in Iowa. Because with farmers closing in on extinction just as the world needs more food, that’s probably what they’ll be driving in a few years.

p/s photos: Keiko Kitagawa