Results

1HFY13 earnings surged by more than 12 folds to RM12.4m (2.44 sen/share), making up 47.8% of our estimates but missed street’s expectations slightly by making up 43.6% of full year forecast.

Deviations

Largely in line.

Dividends

None. Dividends usually declared in AGM.

Highlights

YoY… 2Q revenue grew by 69% to RM199.4m, driven by its huge order book of ~RM1.63bn, as construction activities begin to peak. GP margin expanded to 10.1% from 7.2% in the previous corresponding period. Due to better control on expenses, quarterly earnings swung back to profit of RM6.8m (1.42 sen/share) as opposed to a loss of RM0.4m (0.08 sen/share) in 2QFY12.

QoQ... Revenue resumed its growth pattern by climbing 16%. GP margin also expanded to 10.1% from 5.5% in 1QFY13, as a result, PBT grew at a faster pace of 82% to RM11.7m. However, due to higher effective tax rate of 42.0%, earnings grew by a slower pace of 20%.

1HFY13... Revenue expanded by 75% to RM371.8m, after 2 consecutive busy quarters. GP margin dipped slightly from 8.8% to 8.0%. Overall, due to lower expenses and tax charges, earnings surged by 12 folds to RM12.4m.

Earnings visibility… Total outstanding order book of ~RM1.63bn, translating to ~2.85x FY12’s revenue and ~6.09x 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

BUY

We are encouraged by TRC’s performance after 3 consecutive years of earnings decline. 1HFY13 earnings have already eclipsed FY12’s earnings and we believe that the company is on track for growth as its construction projects accelerate. That said, 3Q may show earnings decline on a QoQ basis due to Ramadhan month and Hari Raya festive season. However, in terms of YoY earnings growth, it should be stronger.

The LRT investigation from the latest mishap is still on-going (please refer to our report “LRT mishap hits again” dated 19 Aug-13) and we believe that it will be concluded soon for works to proceed. We maintain our BUY call on the company given its earnings recovery and substantially reduced concentration risk from executing the LRT project which makes up less than 35% of its outstanding order book.

Valuation

Maintain Target Price of RM0.68 based on unchanged 12x average FY13-14 earnings.

Source: Hong Leong Investment Bank Research - 2 Sep 2013