We are maintaining our Neutral call, forecasts and fair value of MYR0.52 ahead of the release of 1QFY13 results that we expect to come in within expectations.  While we expect better appetite for construction stocks post the 13th general election, at the current levels, TRC’s valuations have fully reflected its 1-year forward earnings potential.     

-  A weak 1Q expected.   We expect TRC’s 1QFY13 results, due out by end-May 2013, to come in at MYR4-5m at the core net profit level.  This will have made up only 12-16% of our full-year forecast and the full-market market consensus.  However, we consider the number within expectations as 1Q is typically a seasonally weak quarter as it embraces the impact of the long Chinese New Year break.  In addition, during the early part of 1Q13, a long wet spell also hampered concreting works.

-  Maiden launch from Ara Damansara project in 4QFY13.  Meanwhile, TRC is in the midst of submitting the development plan to the authority for an integrated development on a 12.3-acre site in Ara Damansara with a GDV of MYR700-800m.  Apart from the highly sought-after Ara Damansara address, the other key selling point of the project is LRT connectivity under the same roof as the development will house the Ara Damansara station of the Kelana Jaya LRT line extension project.  The maiden launch of the first residential tower is scheduled in 4QFY13.

-  Forecasts.  Maintained. 

-  Risks to our view.  The risks include: (1) New contract wins in FY13-14 falling short of our target of MYR400m p.a.; and (2) Rising in input costs. 

-  Maintain Neutral.  Post the 13th general election, we believe investors should refocus on sector fundamentals that are reasonably attractive underpinned by a construction upcycle.  We like TRC for the advantages it enjoys as Bumiputera/Sarawak-state-registered contractor.  However, at the current levels, we believe TRC’s valuations have fully reflected its 1-year forward earnings potential.  Fair value is MYR0.52 based on 10x FD FY13 EPS of 5.2sen, in line with our benchmark 1-year forward target PER of 8-13x for the construction sector.

Source: RHB