Review

• Stripping out the exceptional foreign exchange net gain amounting to RM4.4mn and other non-core items of RM5.5mn, TRC’s 9MFY23 core profit of RM8.4mn came in below expectations, accounting for 48.5% and 56.9% of our and consensus full-year estimates. The variance was mainly due to lower-than-expected profit contribution from the construction division.

• YoY, 9MFY23 core profit dropped 7.4% to RM8.4mn, despite revenue being 7.7% higher at RM552.4mn. The weaker bottom line was mainly attributed to softer earnings performance from the construction division. The operating profit of the construction division fell by 35.3% to RM10.3mn from RM15.9mn a year ago due to slower work progress.

• QoQ, 3QFY23 core profit jumped 838.1% to RM5.0mn, although revenue was 45.1% lower at RM144.9mn. The robust earnings performance was mainly due to the low base effect and lower administrative expenses.

• Its net cash position increased further from RM320.0mn a quarter ago to RM322.3mn.

Impact

• Given the weaker-than-expected results, we adjust our revenue recognition assumptions for certain ongoing projects. Consequently, earnings forecasts for FY23/FY24/FY25 are reduced by 6.2%/3.3%/3.2%, respectively.

Outlook

• As of the end of Sept 2023, the group’s outstanding construction order book stood at around RM0.5bn, translating to about 0.8xFY22 revenue. The group hopes to win some jobs from MRT3 and Kuching Urban Transportation System projects to shore up its order book.

Valuation

• After revising the earnings forecasts, we reduced the target price from RM0.43 to RM0.42, based on unchanged 9x CY24 earnings. Maintain a Buy call on the stock.

Source: TA Research - 1 Dec 2023