Results

• 4QFY14 results posted revenue of RM246m (+6% YoY, +40% QoQ) and PATMI (loss) of -RM7m (compared to loss of RM8m in 4QFY13 and RM2m profit last quarter).

• The loss in 4Q effectively wiped out 70% of the cumulative profits during the first 3 quarters, brining full year FY14 PATMI to a mere RM3.6m (-63% YoY).

Deviation

• Due to the shocking loss in 4Q, FY14 PATMI only made up 25% of our full year estimates (23% of consensus).

Dividends

• None declared given the weak results.

Highlights

• Déjà Vu, it’s FY13 again. The loss was mainly due to upward revision in costs and cost overruns for some of its ongoing jobs. Recall that in 4QFY13, TRC also posted a RM8m quarterly loss. This was also due to cost overruns, particularly for the LRT extension job.

• The not so clean slate. With the provisions and downward revision in project margins made in 4QFY13, we were initially hopeful that TRC would be able to start FY14 on a clean slate. While operational results were decent the first 3 quarters of FY14, the hit in 4Q clearly implies otherwise.

• Orderbook thinning. We estimate TRC’s orderbook to stand at RM1.3bn, implying 1.6x FY14 construction revenue. Apart from its persistently low margins, TRC’s thinning orderbook cover ratio is a concern to us.

• Ara Damansara saviour? The key catalyst for TRC is perhaps the launch of its Ara Damansara mixed development (GDV: RM1bn). While we like its transport oriented concept, being beside the upcoming LRT, the softening property market is certainly a concern. The development order has also yet to be attained.

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

• Previous forecasts are unchanged but we highlight that this only holds if no further cost overruns are incurred, a scenario that is not all too remote, given past trends.

Rating

• Ceasing Coverage
• We are ceasing coverage on TRC given its patchy earnings track record over the last 3 years, all of which had a quarter of losses. Our view on TRC as a potential earnings rebound play, driven by its then sizable orderbook was hampered by its persistently low margins.

Valuation

• Our previous TP of RM0.57 (previously BUY rating) was based on 10x FY15 P/E target (mean during periods of normalised earnings).

Source: Hong Leong Investment Bank Research - 2 Mar 2015