Review

• Excluding a one-off expense of RM0.4mn, TRC’s 1HFY24 core earnings of RM5.1mn accounted for 33.3% and 40.2% of our and the street’s full-year estimates, respectively This aligns with our expectations, as we anticipate stronger earnings in the second half of the year, driven by contributions from newly secured projects.

• YoY, TRC registered a core earnings growth of 47.6%, despite the revenue decreased by 51.5%, primarily due to significantly lower contribution from the property division. The improved 1HFY24 earnings performance was largely driven by better profitability margin in the construction division, which we believe benefited from easing input costs.

• Similarly, TRC’s 2QFY24 bottom line recovered to a profit of RM5.1mn from a core net loss of RM0.1mn in 1QFY24, alongside a 14.9% revenue increase. This improvement was mainly attributable to enhanced gross margins resulting from stabilised raw material costs and a lower effective tax rate.

• Its net cash position decreased from RM322.3mn a quarter ago to RM267.0mn.

Impact

• We maintain our FY24-26F earnings estimates unchanged.

Outlook

• The group’s outstanding construction order book is currently estimated at RM1.0bn, equivalent to about 1.5x FY23 revenue. Meanwhile, its YTD new job wins of RM625.3mn is set to provide an earnings visibility for up to next five years, Additionally, construction for TRC’s Ara Sentral Phase 2 is expected to commence in 4QFY24, which could significantly enhance the property division’s contribution in FY25 and FY26.

Valuation

• We maintain our target price of RM0.51 based on unchanged 12x CY25 EPS. Given its recent share price weakness, we believe this presents a timely buying opportunity. Hence, we upgrade the stock to Buy from Hold previously.

Source: TA Research - 2 Sept 2024