Results

• 3QFY14 results came in with revenue of RM176m (-19% YoY, -9% QoQ) and PATMI of RM2m (-67% YoY, -73% QoQ). Cumulative 9M PATMI stood at RM11m, down 41% YoY.

Deviation

• Results were within our expectations with 9M PATMI at 73% of our full year forecast but below consensus at 63%.

Dividends

• None declared, usually in 4Q, if any.

Highlights

Decent numbers operationally... Operationally, we think that TRC is showing decent turnaround signs. Gross profit margin for 3Q stood at 8.1% (2Q: 8.7%), compared to compressed levels of 3.3% in 1QFY14 and -4.2% in 4QFY13 (net loss).

…but hampered by forex and tax. Despite decent operational numbers, bottomline was impacted by an unrealised forex loss (RM3m) on its AUD loan which was used to acquire a commercial property in Melbourne. As the unrealised forex loss was non tax deductible, this also resulted to high effective tax rate of 56.7%.

Contracts rebound. YTD job wins totalled RM606m (3 contracts), a stark rebound from last year’s meagre RM170m. We estimate TRC’s orderbook to stand at RM1.5bn, implying a decent cover of 2.2x FY13 construction revenue. We gather that another smallish contract (less than RM100m) could be in the bag by year end.

Ara Damansara development. For its mixed development in Ara Damansara (GDV: RM1bn) via a JV with Prasarana, TRC is targeting for its maiden launch in 2Q15. This will consist of a retail podium, offices, hotel, apartments and SOHO. Given that the development will be centred around the upcoming LRT station, we expect strong take up rates.

Risks

• Margin compression for construction, execution on the LRT extension is the key project to watch out for.
• Delays in obtaining approvals for its Ara Damansara development.

Forecasts

• Unchanged as results were inline.

Rating

BUY, TP: RM0.57

• The past 2 years were a washout for TRC. Nonetheless, starting on a clean slate this year, coupled with strong orderbook wins and the impending launch of its Ara Damansara development, we like TRC as an earnings rebound play. Coming from a low base, we project a 3 year CAGR of 53%.

Valuation

• TP of RM0.57 is based on unchanged 10x FY15 earnings, inline with its mean during periods of normalised earnings.

Source: Hong Leong Investment Bank Research - 27 Nov 2014