Review

• Excluding the one-off gain amounting to RM13.3mn, TRC’s FY23 core earnings of RM12.4mn (-7.7% YoY) came in below expectations, accounting for only 83.9% and 91.6% of our and consensus full-year estimates, respectively. The negative deviation was chiefly attributed to lower-thanexpected profit contribution from the construction division.

• YoY, FY23 revenue was stable, but core net profit decreased 7.7% YoY to RM12.4mn. This decrease was primarily due to a 2.7%-pts reduction in EBIT margin to 3.8%, as the margin in the preceding year of 6.4% was lifted by the finalisation of certain project costings.

• QoQ, 4QFY23 core earnings fell by 20.1% to RM4mn as revenue was 12.8% lower at RM126.3mn. The weaker earnings performance could be mainly attributed to the following factors: (i) lower revenue recognition from tailend projects, (ii) escalating administrative costs, and (iii) higher tax expenses incurred.

• Its net cash position decreased slightly from RM322.3mn a quarter ago to RM311.7mn.

Impact

• Given the weaker-than-expected results, we tone down our FY24/25F gross profit margin assumption mildly to 7.2%/7.5%, respectively. Consequently, earnings forecasts for FY24F and FY25F are reduced by 15.9% and 11.6% to RM17.2mn and RM20.7mn, respectively.

• Meanwhile, we introduce our new FY26F net earnings estimates of RM22.8mn, projecting an earnings growth of 9.8%.

Outlook

• As of the end of Dec 2023, the group’s outstanding construction order book stood at around RM750mn, translating to about 1.1x FY23 revenue. The group reiterates its positive stance, hoping to win new jobs from MRT3 and Kuching Urban Transportation System projects to bolster its order book.

Valuation

• Rolling forward our base year valuation to CY25, we arrive at a new target price of RM0.52 (RM0.51 previously) based on a target PER of 12x. Maintain Buy on the stock.

Source: TA Research - 29 Feb 2024