Review

• Stripping off a one-off disposal gain of RM0.2mn, TRC reported a core net loss of RM0.1mn in 1QFY24. The result fell significantly short of both ours and the street’s expectations, primarily attributed to slower-than-expected revenue recognition in the construction division.

• YoY, the group’s 1QFY24 revenue declined by 35.4%, largely due to lower revenue recognition stemming from the completion of several projects.. Consequently, the bottom line plunged into negative territory, recording a core net loss of RM0.1mn.

• QoQ, 1QFY24 registered a core net loss of RM0.1mn compared to a net profit of RM4.0mn in 4Q23. The poor earnings performance was primarily attributed to reduced revenue recognition from ongoing projects, which was further compounded by a higher effective tax rate of 92.7%.

• Its net cash position decreased from RM311.7mn a quarter ago to RM282.8mn.

Impact

• Considering the weaker-than-expected results, we adjust our FY24/25/26F progress billing to account for the slower revenue recognition resulting from the completion of the existing projects. Consequently, our FY24/25/26F earnings forecasts are reduced by 13.5%/10.7%/4.4%, respectively.

Outlook

• The group’s outstanding construction order book currently stands at around RM850mn, equivalent to about 1.3x FY23 revenue. The group maintains an optimistic stance, aiming to win new jobs from MRT3 and Kuching Urban Transportation System projects to strengthen its order book. However, we remain cautious regarding its earnings visibility in the near future, given that its new job wins were as low as RM33.6mn between FY22 and FY23.

Valuation

• Following the earnings revision, we reduce our target price to RM0.46 (RM0.52 previously) based on an unchanged target PER of 12x CY25 earnings. Maintain Sell on the stock.

Source: TA Research - 31 May 2024