We  cut  our  FY13  forecast  by  23%  but  maintain  our  BUY  call  and MYR0.71 FV following the release of TRC’s 9M13 results, which missed expectations  due  to  certain  lumpy  costs.  Nonetheless,  its  9M13  net profit  still  tripled.  We  like  the  advantages  that  TRC  enjoys  as  a Bumiputera  /  Sarawak-state-registered  contractor  and  its  highly-promising property project in Ara Damansara. Selangor.

- 9M13 earnings triple.  TRC’s 9M13 net profit missed expectations due to  certain  lumpy  costs,  coming  in  at  only  59%/69%  of  our  full-year forecast  and  consensus  estimates  respectively.  Nonetheless,  the company’s 9M13 net profit tripled, thanks to a steep improvement in both construction and property profits versus a washout 2012.

- Ara  Damansara  project  will  do  well.   We are bullish on TRC’s new integrated  development  on  a  12.3-acre  site  in  Ara  Damansara  in Selangor, with a GDV of MYR700m-800m. The key selling points include the  highly  sought-after  Ara  Damansara  address  and  LRT  connectivity under  the  same  roof  (Ara  Damansara  station  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.  We  are  projecting  for  TRC’s property  turnover  and  EBIT  to  jump  to  MYR50m  and  MYR12.5m  in FY14, from MYR30m and MYR7.5m in FY13 respectively.

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

- Maintain  BUY.  The  prospects  for  the  construction  sector  are  strong, underpinned  by  an  extended  upcycle  driven  by  the  MYR73bn  Klang Valley MRT project, which will keep players busy until 2019. We also like the  advantages  TRC  enjoys  as  a  Bumiputera/Sarawak-state-registered contractor and its highly promising property project in Ara Damansara in Selangor. Our FV is unchanged at MYR0.71, based on a 10x fully-diluted FY14  EPS  of  7.1  sen,  in  line  with  our  benchmark  1-year  forward  target 
P/E of 10-16x for the construction sector.

Source: RHB