Period     1QFY13 / 3MFY13

Actual vs. Expectations     TRC’s 1QFY13 earnings of RM5.7m came below ours and below streets expectations, making up 16% and 18% of ours and streets estimates, respectively. This is due to our higher assumption on its construction margins.  

Dividends    No dividend was declared, as expected. 

Key Result Highlights     YoY,  TRC’s earnings grew tremendously by 320% from RM1.3m to RM5.7m underpinned by a strong revenue growth (+82%). The higher revenue was mainly attributable to better progress on its LRT and Samalaju dredging works coupled with a lower effective tax rate of 12.4% (-53.4ppt) due to the recognition of deferred tax in 1QFY13. To recap, the stop-work order from SPNB due to the accident was lifted up and this is not material to the bottom-line.

QoQ,  although its revenue was down by 13% to RM172.4m due to slower progress billing as February has a shorter work-day, its net earnings improved by 34% to RM5.7m. The improvement in earnings is mainly attributable to the improvement in LRT margins as LRT works finally picked up paced in the beginning of the year and going full swing ahead.

Outlook    TRC’s outstanding order book comfortably stands at c.RM2.0b providing earnings visibility for the next three years. 

Moving forward, we would expect better earnings contributions from its property segment by FY15 underpinned by the joint development with Prasarana.

Change to Forecasts     Reduced our FY13-14 estimates by 20% and 8% respectively as we adjusted our margin assumptions lower for its construction division accordingly.

Rating  Maintain OUTPERFORM

We continue to OUTPERFORM on TRC as we expect TRC to remains as a strong contender in Sarawak and also on the expansion of its property development business.

Valuation     Raised our TP from RM0.72 to RM0.75 with a higher multiple of 9x on its FY14 PER (previously, 8x FY14 PER) given that its presence in Sarawak (still a discount compared to Sarawak players which is trading at an average of 9.7x FY14 PER).

Risks    Further delays in the LRT/MRT projects.

Source: Kenanga