We left our recent productive meeting with TRC feeling reassured about its near-term outlook. Key takeaways are as follows:- (i) improved earnings visibility backed by a growing orderbook, (ii) a strong candidate for winning mega-infrastructure projects, and (iii) a competitive edge stemming from a healthy balance sheet. We upgrade our recommendation to Hold with a higher TP of RM0.51, based on 11x CY25 EPS.

Improving Earnings Visibility Backed by a Growing Orderbook

TRC expects improved earnings visibility over the next two years due to its growing orderbook. Year-to-date, TRC has secured new jobs worth RM625.3mn, providing earnings visibility for up to five years. This is a significant improvement compared to the RM33.6mn in new jobs secured over the last two years. We believe that this strong momentum in order book replenishment will further boost earnings in the near future, especially with the company’s new target of RM1.0bn in order book replenishment, up from the previous RM600mn.

Strong Candidate to Win Mega-infrastructure Projects

Looking ahead, TRC emerges as a strong candidate to secure Tier-1 contractor packages for potential railway projects, including the Penang LRT and MRT3, as well as Phase 1B of the Pan Borneo Highway in Sabah. This conviction is based on several factors: (i) bumiputra contractor status, (ii) proven track record in previous mega railway projects, and (iii) a robust balance sheet with a net cash position.

Competitive Edge Stemming From Healthy Balance Sheet

As of the end of March 2024, the group’s net cash position was RM282.8mn. This strong cash position provides TRC with better leverage to submit tenders for larger-scale projects, as it reduces the interest costs associated with relying less on bank borrowings to support the 10% operating expenses threshold. Additionally, the group can strategically procure building materials at more favourable prices on a cash basis, thereby maximising profitability for its construction projects.

Impact

We revise our FY24 new job replenishment assumption to RM1.0bn from RM700.0mn previously, as the YTD new job wins have accounted for 89.3% of our previous assumption. As a result, our FY24/25/26F earnings estimates have been adjusted higher by 2.3%/9.9%/4.9%, respectively.

Valuation

Following the earnings revision, we raised our target price to RM0.51 from RM0.46 previously, premised on unchanged 12x CY25 EPS. Upgrade the stock to Hold from Sell previously.

Source: TA Research - 28 Jun 2024