News     It was reported in the news of another construction accident involving TRC Synergy (“TRC”) in the LRT extension project near USJ2 whereby a crawler crane collapsed onto a parked SUV along the residential road.

Comments    This would be the second mishap on the LRT extension project involving TRC. The management is deeply regretful over the unfortunate event where a crane collapsed while it was conducting piling work on the stretch along Jalan USJ 2/3 crushing a SUV.

Fortunately the accident did not cause any casualties.

We understand from management that the portion of this particular stretch of work falls under TRC’s sub-contractor who had adhered to the standard operating procedure in ensuring the safety of the public while executing the construction works.

Given that the accident was caused by its subcontractors, it is unlikely to impact TRC’s earnings greatly as they would be able to claim damages from the sub-contractor.

While management remains uncertain when the stop-work order from Subang Jaya Municipal Council (“MPSJ”) will be lifted, we do not expect the accident to cause any major delays on the LRT extension project as the stop work order issued was confined to that particular stretch of works near USJ 2. As of April, TRC has completed 34% of the LRT extension and the project is still slated for completion in 2015.

Outlook    TRC’s outlook remains bright with its outstanding order book standing at c.RM1.8b, providing earnings visibility for the next two to three years. The launching of its maiden rail plus property project in Ara Damansara in 1Q14 would potentially boost up its earnings.

Forecast    No changes to our earnings estimate. 

Rating    MAINTAIN  OUTPERFORM

We continue to like TRC and maintain our OUTPERFORM recommendation as we expect TRC to remain as a strong contender in Sarawak further boosted by the expansion of its property development division.

Valuation     We are keeping our TP unchanged at RM0.75 based on 9.0x Fwd PER on its FY14E earnings.

Risks    Price escalation in raw materials and labour costs.

Source: Kenanga