TRC’s 1HFY22 core PATAMI of RM9.8m was within our expectations. Core operations are generally improving but there are handover delays at its JV . Going forward, we expect TRC to be a beneficiary of upcoming railway project due to (i) extensive track record in mega railway projects and (ii) healthy balance sheet (net cash). To note, in the past TRC secured bumper contracts from previous mega railway projects. As for property, TRC is aiming to deliver its Perla@Ara Sentral (GDV: RM304m) in 4QCY22 with construction virtually completed. Maintain forecasts and BUY rating with unchanged TP of RM0.40. Trading near its NCPS (RM0.32) we deem TRC to be undervalued.

Within expectations. TRC reported 2QFY22 results with revenue of RM198.7m (+12.6% QoQ, +12.4% YoY) and core PATAMI of RM3.3 m (-48.8% QoQ, -4.1% YoY). This brings 1HFY22 core PATAMI to RM9.8m increasing by 8.0% YoY. We deem the results within expectations making up 52% of full year forecasts. No EIs have been assumed.

Dividends. No DPS Was Declared.

QoQ. Core PATAMI declined by -48.8% mainly due to unrealised forex gain of RM4.8m in 1QFY22. Operations-wise, TRC’s operations continue to normalise with revenue and GP increasing by 12.6% and 43.8%. Improvements was anchored by its construction segment seeing a pick-up in billings while losses at its hotel segment continues to narrow, buoyed by higher occupancy rates (>50%). Profit contribution from property was flattish, where we expect a bigger pickup towards year end,

YoY. On a YoY basis performance was flattish with core PATAMI lower by -4.1%. Weaker contribution from share of JV (2QFY21: RM4.5m; 2QFY22: -RM0.2m) reversed an otherwise improved performance from its core operating divisions. The weakness from JV was brought about by delays in handover for its development at Wallan, Australia.

YTD. Despite a flattish top-line (-0.8%), bottom-line was higher by 8.0% aided by lower admin costs (-22.2%), lower finance costs (-37.2%) and lower taxation.

Outlook. Going forward, we expect TRC to be a beneficiary of upcoming railway project due to (i) extensive track record in mega railway projects spanning stations, viaducts and depots and (ii) healthy balance sheet (net cash). To note, in the past TRC secured bumper contracts past railway projects. TRC’s unbilled orderbook currently stands at an estimated 1.4x cover, a thin cover ratio brought about by weak jobs flows in the past two years. As for property, TRC is aiming to deliver its Perla@Ara Sentral (GDV: RM304m) in 4QCY22 with construction virtually completed. We gather that it has garnered a strong overall take up of 83% (including affordable units) and should boost earnings later this year.

Forecasts. Maintained.

Maintain BUY; TP; RM0.40. Maintain BUY rating and unchanged SOP-driven TP of RM0.40 based on 50% discount. At our TP, TRC trades at a FY22f/23f/24f P/E multiple of 10.2x/10.3x/7.8x. We believe attaching a 50% discount (vs 20-30% for larger peers) is warranted considering its smaller size and weak replenishment in the last 2 years. At current price trading near its NCPS (RM0.32 in 2QFY22) we deem TRC to be undervalued as we see the company as a key beneficiary of MRT3. Key upside risks: MRT3 contract wins; Downside risks: substantial project delays, higher costs pressure, labour shortage, politics and sluggish tourism recovery.

Source: Hong Leong Investment Bank Research - 1 Sept 2022