Stock Name: TRC
Company Name: TRC SYNERGY BHD
Research House: HWANGDBS

TRC Synergy Bhd
(Oct 19, RM1.39)
Upgrade to buy from fully valued at RM1.38 with revised target price RM1.85 (from 94 sen): We base our upgrade on TRC to 'buy' on a higher 12 times PER multiple and higher earnings. This is a 35% discount to the sector's 18 times average to reflect its smaller market cap and less diversified business portfolio. We also raise FY10/12 EPS by 8% to 112% to account for higher new order assumptions of RM250 million to RM800 million for those years, coupled with higher margins of 7% to 8% (against RM158 million to RM300 million and 6% margins). The stock is the cheapest in our universe, trading at one-year forward nine times PER and 0.8 times price to net tangible assets, while its balance sheet is strong with 79 sen net cash per share.

TRC will see substantial order book replenishment over the next three to six months after a period of muted contract wins. We understand it is the front runner to clinch the main contractor role for the 9.2km Kelana Jaya line (Kelana Jaya station to Summit). This is part of the 17.7km stretch which closed for tender in late-August and is awaiting award. Total contract value could be at least RM1 billion to RM1.5 billion, half of the RM2.5 billion to RM3 billion for Package A that includes 7.2km of the Ampang line. The closest competitor is UEM Builders, but apparently TRC has been recommended to the Ministry of Finance by Syarikat Prasarana Negara Bhd. We understand the Kelana Jaya line is more complex with a higher contract value. This could see its order book quadruple to RM1.9 billion from RM400 million currently, implying four or five years earnings visibility.

TRC's total RM3.3 billion tender book includes circa RM1 billion for the LRT extensions and infrastructure works in the Sarawak Corridor of Renewable Energy (SCORE) and East Coast Economic Region (RM200 million). We understand there are 15 packages in SCORE that are opened to UPK licence holders. TRC's UPK licence allows it to compete in the closed Sarawak construction market dominated by a handful of players. Contract flows in the state are expected to be strong, given the anticipated rollout of more projects in SCORE and the upcoming state elections. ' HwangDBS Vickers Research, Oct 19


This article appeared in The Edge Financial Daily, October 20, 2010.