TRC announced it has obtained the final award from the Singapore International Arbitration Centre amounting to ~RM75M, by our estimates. While TRC has not indicated for a potential special div, we flag possibilities of such a pay-out considering solid balance sheet and dwindling orderbook. A reasonable 10-30% pay-out ratio translates to yields of 4.6-13.7%. No change to forecasts as financial impact is non-core. Despite potential uplift to the stock on a total return basis, we retain our HOLD rating and unchanged SOP-driven TP of RM0.36 considering: (i) the company has not cement its intention to distribute proceeds and (ii) uncertain earnings prospects due to infrequent contract wins. At our TP, TRC trades at a FY22f/23f/24f P/E multiple of 9.4x/9.9x/8.9x. Key upside risks: MRT3 contract wins; special dividend. Downside risks: substantial project delays, higher costs pressure, labour shortage, politics and sluggish tourism recovery.

NEWSBREAK

TRC announced it has obtained the final award from the Singapore International Arbitration Centre against Brunei Economic Development Board in relation to the Brunei International Airport modernisation project. Under the judgement, TRC is awarded: (i) BND13m plus simple interest of 5.33% pa from 23 Oct-17 until payment date; (ii) BND3.3m plus simple interest of 5.33% pa from 23 May-18 until payment date; (iii) SGD2.2m for legal and other costs and (iv) SGD75k for arbitration costs.

HLIB’S VIEW

Good outcome. Based on our estimates, the above award including accrued interest amounts to approximately RM75m (~46% of market cap). The company will now focus on successful enforcement of the above award. According to management, at present TRC does not owe subcontractors or suppliers for the Brunei project. Our estimated RM75m could therefore be close to the nett amount to be received and retained by the company. TRC has not declared its intention to distribute the proceeds as special dividends pending payment but we believe based on current working capital needs and NCPS of RM0.29, there could be one going forward. Assuming a reasonable 10- 30% pay-out ratio translates to yields of 4.6-13.7%.

Forecasts. Maintained as financial impact is non-core.

Maintain HOLD; TP; RM0.36. Despite potential uplift to the stock on a total return basis, we retain our HOLD rating and unchanged SOP-driven TP of RM0.36 considering: (i) the company has not cemented its intention to distribute proceeds and (ii) uncertain earnings prospects due to infrequent contract wins. At our TP, TRC trades at a FY22f/23f/24f P/E multiple of 9.4x/9.9x/8.9x. 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. Key upside risks: MRT3 contract wins; special dividend. Downside risks: substantial project delays, higher costs pressure, labour shortage, politics and sluggish tourism recovery.

Source: Hong Leong Investment Bank Research - 31 Jan 2023