Review

• Stripping out an exceptional net loss amounting to RM0.6mn, TRC’s  1QFY23 core profit of RM3.1mn came in at 12.8% and 7.7% of ours and consensus’ full-year estimate, respectively. We deem the results to be within expectations as we expect the earnings to be largely back-end loaded. The progress of construction works is likely to pick up in 2H2023  following the ease of the labour shortage issue. \

• YoY, 1QFY23 core profit surged 132.7% to RM3.1mn, although revenue was 18.7% lower at RM143.5mn. The stronger bottom line was mainly due to higher gross profit margins as a result of the revision of budgeted costs for certain projects.

• QoQ, 1QFY23 core profit fell 27.3% to RM3.1mn, while revenue was 13.3%  lower at RM143.5mn. The weaker earnings performance was mainly due to the high base effect as the group managed to revise upward on the margin for certain projects that were near completion in 1QFY22.

• Its net cash position jumped significantly from RM118.2mn a quarter ago to  RM241.1mn, mainly due to the cash received from the arbitration award.

Impact

• Maintain our FY23 to FY25 earnings forecasts.

Outlook

• The group’s current outstanding construction order book stands at around  RM0.7bn, translating to about 1.1xFY22 revenue. The group is still eying for the MRT3 project as a near-term boost to its order book. Recap, the group has bid for the work package CMC301. We believe the group is one of the frontrunners thanks to its extensive track record in railway projects.  If the group fails to win the bid to become the main civil contractor, we believe TRC still has a good chance to get a slice of cake by becoming the work package contractor.

Valuation

• No change to our target price of RM0.43, based on unchanged 8x CY24  earnings. Maintain Buy on TRC.

Source: TA Research - 31 May 2023