TRC: A breakout?

After a lacklustre FY23 earnings performance, we anticipate a turnaround for TRC, with FY24 and FY25 expected to record 48% and 8.4% YoY growth, respectively. Our optimism is based on the anticipation of a strong performance in both the construction and property segments.
 
Construction. Unbilled orderbook currently stands at RM750m, translating to 1.4x cover on FY23 construction revenue. This strong orderbook was bolstered by the group securing one substantial project in FY24 YTD – an airport project at a contract size of RM358m. This unexpected addition alleviates near-term concerns about its dwindling orderbook. Looking ahead, with infrastructure projects expected to materialize in FY24, TRC could be a beneficiary of this healthy environment. Some project that we believe TRC will participate are Penang LRT, MRT3, remaining KUTS package, road packages in East Malaysia and an airport job. Particularly, TRC is well-positioned as a strong contender for Penang LRT and MRT3 due to its Bumiputera contractor status, extensive track record in mega railway projects encompassing stations, viaducts, and depots, and a healthy balance sheet with net cash.

Property. After achieving a 100% take-up rate for TRC’s flagship Ara Sentral Phase 1, the company is poised to begin Phase 2 of the project (GDV: RM500-600m) in 3QFY24, with the launch slated for 3QFY25. TRC intends to complete substructure works before launch to mitigate LAD risks from any potential construction hiccups. The impending launch of Phase 2 is poised to further solidify the group's earnings, complementing the already anticipated strong performance in the construction segment.

Pending breakout. After yesterday’s bullish long white candlestick closing, accompanied by heightened volume, TRC now stands just one bid away from its long-term resistance level of RM0.50. A successful breakout above the said hurdle will spur the price toward RM0.54-0.58-0.60 levels, forming a higher high pattern. Cut loss at RM0.44.

Collection range: RM0.47-0.48-0.49

Upside targets: RM0.54-0.58-0.60

Cut loss: RM0.44

Source: Hong Leong Investment Bank Research - 3 Apr 2024