Period  3Q13 / 9M13

Actual vs.Expectations  Below expectations. TRC Synergy’s (TRC)’s 9M13 reported earnings of RM18m make up 63% and 65% of our and streets estimates, respectively; in our case, the cost assumption was too low.

Dividends  No dividend was declared, as expected.

Key Result Highlights 9M13 vs. 9M12: YoY, Earnings grew 201% from RM6.0m to RM18.0m on the back of revenue growth of 58%. The strong revenue growth was largely due to its Kelana Jaya LRT line extension project which progressed more than 50% (slated for completion in early 2016), while the progress works on KVMRT is on track. Subsequently, construction margin also improved by 3ppt from 2% to 5%.

 3Q13 vs. 2Q13: QoQ, its earnings declined by 18% from RM6.8m to RM5.6m despite 8% growth in revenue, as the construction segment saw a margin squeeze of 3ppt from 7% to 4% largely due to higher administrative expenses and finance costs.

Outlook  TRC’s outstanding orderbook remains fairly healthy at c.RM1.8b which would provide earnings visibility for the next three years, and we are still excited about its joint development with Prasarana in Ara Damansara (estimated GDV of RM687.6m).

Change to Forecasts    We cut our FY13E and 14E earning estimates by 19% and 17%, respectively, as we have factored in higher operating costs for TRC, which were main drags to margins.

Rating Maintain OUTPERFORM We continue to maintain our OUTPERFORM call on TRC, being a strong contender for infrastructure works (i.e. LRT, MRT, Sarawak rural roads/port dredging) and also for its expansion in its property development business, particularly the rail-plusproperty joint venture project with Prasarana in Ara Damansara.

Valuation  Inline with the reduction in our earnings estimates, our TP for TRC is lowered by 17% from RM0.75 to RM0.62 based on an unchanged 9x FY14 PER.

Risks to Our Call  Delay in the LRT/MRT projects.

Source: Kenanga