Journey to Wealth
TRC Synergy - 2Q12 results below expectation
Period 2Q12/1H12
Actual vs. Expectations
The 1H12 net profit of RM1.0m came in below ours and the street's estimates, making up 6.3% and 4.5% of our FY12E net profit and that of the consensus respectively.
Dividends No dividend was declared during the quarter.
Key Result Highlights
On a YoY and QoQ basis, TRC's net loss of RM0.4m was predominantly due severe margin contraction to 1.4% (-1.8ppt YoY; -5.6ppt QoQ) as a result of higher operating costs (administration costs) incurred due to the delay on its LRT extension project and lower contribution from its property development in Australia. In addition, there was a higher effective tax rate due to the underprovision of taxation in previous years. However, the loss was an improvement of 195% from the loss of RM2.3m in 1Q12 due to a profit of RM2.2m at its investment division.
Outlook TRC's order book currently stands at c.RM2.2b, which provides a 3-year earnings visibility to the group and will keep it busy throughout the year.
As per management guidance, the LRT extension works should pick up pace in 2H12 as the Development Orders have been obtained in Apr-12.
Change to Forecasts
We have tweaked our FY12-FY13E lower by 35% and 19% to RM10.1m and RM35.8m respectively as we factored in further delays in its LRT extension contract.
Rating Maintain OUTPEFORM
We maintain an OUTPERFORM on the stock due to the attractive share price upside of 13% to our TP of RM0.71 and given the strong earnings visibility of the group.
Valuation We have lowered our Target Price to RM0.71 based on 9.0x Fwd PER on lower FY13E EPS of 7.9 sen (previously RM0.73 based on 9.0x Fwd PER to the weighted average FY13E EPS of 8.1 sen). We will further lower our Target Price if there anymore delays from its LRT project.
Risks Further delays in the LRT/MRT projects.
Source: Kenanga
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