News

Secured two projects from KL Eco City S/B collectively worth RM414.6m. The details are:

Contract A: Diaphragm Walls, Earthworks, Piling, Basement and Podium for RM222.3m. To be completed by Mar-17.

Contract B: Office Tower A and Balance Works to Basement and Podium for RM192.3m. To be completed by Oct-17.

Highlights

First and a big one… The contract represents TRC’s first contract win for the year and is a sizable size, translating to 52% of FY13’s revenue and 29% of its previous outstanding order book of RM1.43bn.

Order book lift... With the latest order, outstanding order book has been lifted to RM1.84bn, translating to 2.3x FY13’s revenue.

Focusing on execution… We are taken aback by 4th quarter’s provision after TRC has been posting consistent quarterly earnings since 3QFY12. Management will have to remain focused in executing its RM1.84bn outstanding order book (2.3x FY13’s revenue) and consistently deliver earnings.

Risks

Single project concentration and execution risk in the LRT project (albeit reduced with LRT project now making up 27% of the current order book); Regulatory and political risk; Rising raw material prices; and Unexpected downturn in the construction sector.

Forecasts

Unchanged as the contract win is already part of our RM600m order book replenishment assumption for FY13.

Rating

BUY

We believe that TRC is able to overcome its execution setbacks and return on the path of earnings recovery. We also favour the move to integrated construction/property business model. Hence, we are maintaining our BUY call on the company.

Valuation

Maintain TP of RM0.62 based on unchanged 12x average FY14-15 earnings.

Source: Hong Leong Investment Bank Research - 4 Apr 2014