TRC’s FY22 core PATAMI of RM22.2m exceeded our expectations. Key deviation was lower than expected net finance expense and effective tax rate . Going forward, we see TRC as a high MRT3 beta stock due to (i) extensive track record in railways and (ii) weak replenishment pipeline aside from MRT3. Barring any significant realignment of the project, we expect awards only in 2H23. TRC’s unbilled orderbook currently stands at an estimated 0.9x cover, a thin cover ratio brought about by weak jobs flows. Cut FY23/24 earnings by -11.3%/-13.1%. Maintain HOLD rating with lower SOP-driven TP of RM0.34.

Beat expectations. TRC reported 4QFY22 results with revenue of RM164.5m (19.4% QoQ, -31.7% YoY) and core PATAMI of RM9.5 m (214.3% QoQ, 53.5% YoY). This brings FY22 core PATAMI to RM22.2m increasing by 5.3% YoY. Results exceeded our expectations coming in at 122% of full year forecasts. Deviation came from lower than expected net finance expense and effective tax rate.

Dividends. No DPS Was Declared.

QoQ/YoY. Core PATAMI increased by 214.3% QoQ and 53.5% YoY boosted by higher profitability margins from construction and property segments. During the quarter there was recognition of final account for a completed project as well as upward revision of project margins for certain ongoing projects.

YTD. TRC saw core PATAMI increasing by 5.3% offsetting revenue decline of -11.2%. The lower top-line was felt across the board in construction, property and hotel segments. Nevertheless, bottom-line fared better due to TRC’s leaner administrative costs which fell by -15.2% in FY22.

Outlook. Going forward, we see TRC as a high MRT3 beta stock due to (i) extensive track record in mega railway projects spanning stations, viaducts & depot and (ii) weak replenishment pipeline aside from MRT3. TRC is allegedly the preferred bidder for MRT3 CMC301 package (RM3.1bn) during the previous bidding round held last year, according to The Edge. Barring any significant realignment of the project, we expect awards only in 2H23. Elsewhere, TRC does have track record in executing infrastructure projects in Sarawak and Sabah and could benefit from sustained levels of DE in both states. Nonetheless, we gather that bidding competition is intense resulting in thin margins. TRC’s unbilled orderbook currently stands at an estimated 0.9x cover, a thin cover ratio brought about by weak jobs flows.

Forecasts. Despite the earnings beat, we cut FY23/24 earnings forecasts by -11.3% and -13.1% post delaying contract win assumptions.

Maintain HOLD; TP: RM0.34. Maintain HOLD with lower SOP-driven TP of RM0.34 (from RM0.36) based on 50% discount. At our TP, TRC trades at a FY23f/24f P/E multiple of 10.7x/9.8x. We believe attaching a 50% discount (vs 20-30% for larger peers) is warranted considering its smaller size and weak replenishment in the last 3 years. NCPS remains rather healthy at RM0.24 (in 4QFY22), as such, further downside could be limited. 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 Mar 2023