News

• Submarine base refitting. TRC announced that it has been awarded a RM60m design & build contract for the Malaysian Scorpene refit infrastructure works at the Royal Malaysian Navy submarine base in Sepanggar Bay, Sabah.

Comments

• More works from Sepanggar Bay. Securing this contract is not entirely surprising as TRC has in the past, undertaken works for this submarine base involving the main structure (RM318m), umbilical services (RM87m) and hangar facilities (RM45m). We also highlighted the potential of TRC winning this contract during our 3QFY14 Earnings Evaluation report.

• First contract win for 2015. This contract marks TRC’s first job win for FY15. Last year, it managed to secure 3 contracts totalling RM606m. We estimate its orderbook to now stand at RM1.4bn (after factoring in 4Q burn rate), implying 2x cover on construction revenue.

• 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 mid-2015. 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 encouraging 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 FY15 job wins of RM60m are within our RM500m orderbook replenishment assumption.

Rating

BUY TP: RM0.57

• FY12-13 were washout years for TRC. Nonetheless, starting on a clean slate in FY14, 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 (FY14-16) 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 - 18 Feb 2015