We maintain our BUY call, forecasts and MYR0.71 FV, following 2QFY13 results  that  met  expectations.  The  prospects  for  the  local  construction sector  remain  strong,  backed  by  various  mega  infrastructure,  property and oil & gas projects.  We also like TRC for the advantages it enjoys as a  Bumiputera/Sarawak-state-registered  contractor  and  its  highly promising property project in Ara Damansara.  

- 1HFY13  earnings  catapult.  1HFY13  core  net  profit  of  MYR14.4m (excluding  MYR2m  unrealised  forex  losses)  met  expectations,  reaching 46-53%  of  our  and  consensus  full-year  estimates  respectively.  It  was  a huge  improvement  from  a  mere  MYR0.2m  core  net  profit  recorded  in 1HFY12.    

- Ara  Damansara  project  will  do  well.   We are bullish on TRC’s new integrated  development  on  a  12.3-acre  site  in  Ara  Damansara  with  a gross development value (GDV) of MYR700-800m. The key selling points include  the  highly  sought-after  Ara  Damansara  address  and  LRT connectivity  under  the  same  roof  (Ara  Damansara  station  will  be  on  the extended  Kelana  Jaya  LRT  line).  With  the  maiden  launch  of  the  first residential  tower  scheduled  imminently,  we  expect  the  project  to  drive TRC’s property profits substantially  higher  from  FY14.  In  our  earnings forecasts,  we  project  TRC’s  property  turnover  and  EBIT  to  jump  to MYR50m and MYR12.5m in FY14, from MYR30m and MYR2.5m in FY13 respectively.  

- Risks  to  our  view.  The  risks  include:  (i)  new  contract  wins  in  FY13-14 falling short of our target of MYR400m p.a., (ii) rising input costs, and (iii) lower  progress  and  margins  from  the  MYR950m  “Package A”  Kelana Jaya  LRT  line  extension  project  following  two  mishaps  at  project  sites recently.

- Maintain  BUY.  The  prospects  for  the  local  construction  sector  remain strong, backed by various ongoing and shovel-ready mega infrastructure, property  and  oil  &  gas  projects. We  also  like  TRC  for  the  advantages  it enjoys  as  a  Bumiputera/Sarawak-state-registered  contractor  and  its highly promising property project in Ara Damansara. Our MYR0.71 FV is based  on  10x  fully-diluted  FY14  EPS  of  7.1sen,  in  line  with  our benchmark  1-year  forward  target  P/E  of  10-16x  for  the  construction sector. 

Source: RHB