News

Accepted the offer from the Public Works Department Malaysia (JKR) to construct and complete the proposed refurbishment and upgrading works for Parliament House of Malaysia (Phase 2B) for RM191m.

Highlights

Assuming a net profit margin of 5%, this contract translates to 2 sen/share for the company.

YTD, TRC won RM606m worth of contracts, which has already surpassed our orderbook assumption of RM600m.

Order book exceeds RM2bn... The latest contract has lifted TRC’s outstanding order book by 10.4% to RM2.04bn, translating to 2.6x of 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. Although 1Q14 earings recovered into the black, margin is still compressed. Management will have to remain focused in executing its RM2.04bn outstanding order book (2.6x 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 25% of the current order book); Regulatory and political risk; Rising raw material prices; and Unexpected downturn in the construction sector.

Forecasts

Unchanged for now.

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 at RM0.62 based on unchanged 12x average FY14-15 earnings.

Source: Hong Leong Investment Bank Research - 9 Jul 2014