• Values resurface. After hitting a 52-week high of RM0.525 (28 May), TRC’s share prices corrected 29.5% to a low of RM0.37 (1 June) before recovering to close at RM0.425 yesterday. Currently, valuations remain undemanding at 8.6x FY17 P/E (42% below its peers) and 0.56x P/B (35% below its 10-year average of 0.86x), supported by strong earnings CAGR of 23% from FY16-18 and outstanding orderbook in excess of RM1.1bn (a cover ratio of 1.5x on FY15 construction revenue).
   
• Scope of works. Key job wins recently include development of new Kuala Lumpur Air Traffic Control Centre, 2 packages from MRT Corp (construction and completion of Pasar Seni Paid Link and renovation and conservation works to Block A & C Bangunan Sultan Abdul Samad) and Pan Borneo Highway. Going forward, TRC is actively bidding a total tender book over RM1bn jobs, which includes LRT3, MRT2 rail links and other highways such as SUKE and DASH.

• Value in Ara Damansara project. The impending launch of the long-awaited GDV RM1bn Ara Damansara mixed development project (consists of a retail podium, offices, hotel, apartments and SOHO) by 1H17 could be a rerating catalyst. Given that the development will be centred around the upcoming LRT station, we expect encouraging take up rates.

• Positive triangle breakout. The uptrend from Jan 2016 remains intact following the positive triangle breakout from the RM0.475 high (17 Aug) recently, which may reignite further buying interest, supported by upticks in technical indicators.
• A decisive breakout above RM0.44 (13 Sep high) will lift prices towards RM0.465 (61.8% FR) and our LT target at RM0.50 psychological barrier. Major supports are near RM0.405 (23.6% FR) and RM0.40 psychological levels. Cut loss at RM0.39

Source: Hong Leong Investment Bank Research - 13 Oct 2016