Results

1QFY14 PATAMI fell 70% yoy to RM1.8m (0.37 sen/share), missing estimates by making up 8% and 6% of ours and street’s full year estimates respectively.

Deviations

Mainly due to continue provisions for cost overrun and upward revision of budgeted costs.

Dividends 

Declared 0.5 sen per share, in line with our forecast of 0.5 sen per share.

Highlights

Yoy review… 1QFY14 revenue grew by 15% YoY, supported by sizeable order book of RM1.64bn. However, GP fell 32% yoy following provisions for cost overrun and upward revision of budgeted costs. As a result, 1Q14 PATAMI fell70% yoy to RM1.8m (0.37 sen/share).

QoQ rebounded... Despite revenue dropped 7% QoQ, PATAMI swung from losses of RM7.6m to profit of RM1.8m in 1Q14 as the magnitude of cost overrun was lower than 4Q13.

Orderbook of RM1.64bn…After recent contract win of RM414m from KL Eco City, we estimate latest orderbook to stand at RM1.64bn (2x FY13’s revenue).

Focusing on execution… We are taken aback by this and previous quarter’s provision after TRC has been posting consistent quarterly earnings since 3QFY12. Management will have to remain focused in executing its RM1.64bn outstanding order book and consistently deliver earnings.

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

FY14 and FY15 earnings cut by 11% and 4% respectively as we revise down margin assumption for ongoing construction project due to cost overrun.

Rating

HOLD

Given the concern on the cost overrun for some ongoing construction project, we choose to be conservative on margin assumption while waiting for consistent earning delivery. Post earning downgrade, our new TP of RM0.57 only provides 4.6% return which prompts us to downgrade from BUY to HOLD.

Valuation

Due to lower forecasted earnings, our Target Price is trimmed by 8% to RM0.57 based on unchanged 12x average FY14-15 earnings.

Source: Hong Leong Investment Bank Research - 29 May 2014