Journey to Wealth
TRC Synergy - Secures RM284m station package
News MRT Co announced that TRC Synergy (TRC) had been chosen to be the sub-contractor of Syarikat Muhibbah S/B* for the construction of the MRT station under 'Package S1' worth RM284m.
Comments It is one of the station packages in viaduct Package V1 (RM1.0b) which was awarded to Syarikat Muhibbah in early May-12.
The news caught us by surprise as we did not expect TRC to further top up its FY12E new order book replenishment from RM689m to RM973m.
However, we remain neutral on the news as we expect the contribution to only materialise in FY13. Further, there have been delays in a few of its ongoing contracts, i.e. Dayabumi and Brunei International Airport. The contract value of RM284m above would be within our FY13 order book replenishment assumption of RM300m.
Outlook The outstanding order book currently stands at c. RM2.2b, which provides 3 years earnings visibility for the group.
Going forward, as a UPK license holder in Sarawak, we believe that TRC stands a higher chance to secure SCORE based projects like roads and other infra works.
Forecast Nonetheless, we have lowered our FY12E net profit by 15% from RM18.2m to RM15.4m as we take into consideration of some of its project delays like the Dayabumi project.
We expect the upcoming 2Q12 results to come in below ours and consensus estimates due to the delays in its LRT project.
However, we believe the recognition of the project contribution will pick up pace from 2H12 onwards as the LRT project currently has been in full swing since June 2012.
Rating MAINTAIN OUTPERFORM
The stock still have an attractive upside of 16% to our new TP of RM0.73 given the 22% discount on the assigned PER of 9x compared to its peers.
Valuation We lowered our target price by 11% from RM0.82 to RM0.73 based on 9x Fwd PER to its weighted average FY12-13E (25:75) EPS of 8.1 sen (previously at 12x on simple average of FY12-FY13E EPS of 6.7sen). We ascribed lower PE as we believe that the market has accounted the risk of further delays for TRC in executing its current order book.
Risks Price escalation in raw materials and labour costs
Source: Kenanga
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