Results

1QFY13 earnings surged by 320% YoY, to RM5.7m (1.19 sen/share) making up 22% of our estimates but missed street’s expectations by making up 18% of full year forecast.

Deviations

Seasonal weakness. Hence, we consider earnings to be largely in line.

Dividends

None. Dividends usually declared during AGM.

Comments

Results review… YoY, revenue surged by 82% to RM172.4m, driven by its huge order book of ~RM1.9bn. However, due to GP margin contraction from 10.8% to 5.5%, GP fell by 8% to RM9.4m. We believe that this is due to low margins for the LRT extension project. Earnings on the other hand, grew by 320% to RM5.7m, due to lower expenses arising from the absence of tax penalty expenses in 1QFY12.

QoQ... Revenue fell by 13%, as 1Q tends to be seasonally slower. Likewise, PBT fell by 18% to RM6.5m. However, due to lower effective tax rate of 12.4%, earnings grew by 34%.

Earnings visibility… Total outstanding order book of ~RM1.9bn, translating to ~3.3x FY12’s revenue and ~6.4x order book-to-market cap ratio.

Risks

• Single project concentration and execution risk in the LRT project;
• Regulatory and political risk;
• Rising raw material prices; and
• Unexpected downturn in the construction sector.

Forecasts

Unchanged.

Rating

HOLD

• We are encouraged by the 1QFY13’s earnings as it was the highest since 2QFY11. The prospects for earnings recovery in the subsequent quarters remain strong. However, we believe that TRC has to maintain earnings growth consistency to attract the attention of investors. With less than 10% upside from our current price, we maintain our HOLD call on the company.

Valuation

• Target Price raised by 19.3% to RM0.68 based on P/E of 12x average FY13-14 earnings. The higher P/E multiple of 12x was used instead of 10x due to stronger prospects (after this encouraging results) of earnings recovery.

Source: Hong Leong Investment Bank Research - 31 May 2013