Secures Building Refurbishment Job Worth RM358mn

TRC has secured a contract valued at RM358mn from Impeccable Vintage Properties Sdn Bhd, a subsidiary of Khazanah Nasional Bhd. The scope of this contract involves the proposed refurbishment of the main building and infrastructure works at Subang Engineering Complex A, located at Sultan Abdul Aziz Shah Airport, commonly referred to as Subang Airport.

Our View

We anticipate that this development, marking TRC's first construction contract secured in 2024, will significantly contribute to the group's overall outstanding orderbook. Based on our estimation, the group’s current outstanding orderbook stands at around RM750mn, translating to about 1.1x FY22 revenue. Assuming a PBT margin of 8%, the project is estimated to generate a net profit of RM21.8mn throughout the construction period.

As TRC successfully secures its first sizable contract in a considerable period, we are optimistic about the positive impact on the group's earnings visibility in the medium term. Furthermore, we believe this success positions the group favourably to pursue and secure more substantial projects in the future, leveraging its strengthened track record.

Forecast

Despite the successful job win falling within our FY24 order book replenishment assumption of RM700.0mn, we have adjusted our construction division's revenue recognition assumption for FY23/24/25F. This adjustment stems from a lower-than-expected job replenishment rate of RM33.6mn in FY23, as opposed to our initial assumption of RM500mn. Consequently, this has resulted in a reduction in earnings forecasts by 9.4%, 9.6%, and 3.2% for FY23, FY24, and FY25, respectively.

Valuation

Anticipating a potential upswing in the domestic construction sector, we assign a higher PER of 12x to TRC’s CY24 EPS and raise our TP to RM0.51 (from RM0.42 previously). We acknowledge TRC as a strong contender for the MRT3 project, given its (i) bumiputra contractor status, (ii) proven track record in mega railway projects, and (iii) robust balance sheet with a net cash position. Maintained Buy.

Source: TA Research - 5 Feb 2024