TRC (FV RM0.79 - TRADING BUY) FY11 Results Review: 4Q Numbers a Letdown

TRC’s  FY11  topline and core  earnings  came in at RM391.3m and  RM13.5m respectively. At a glance, the numbers seem to be in line with our estimate at 96.8% of the full year forecast, but its 4QFY11 numbers were distorted by positive taxation. At the pretax level, its FY11 earnings would have fallen short of both street and our forecasts at 68.3% and 81.6% of the full-year estimates respectively. That said, we are keeping our bullish view on the company as TRC is a strong contender for the elevated works for the KV MRT SBK line. Hence, maintain TRADING BUY, at a slightly lower FV of RM0.79.

Disappointing 4QFY11.  TRC’s FY11 revenue amounted to RM391.3m (+3.9% y-o-y) while earnings stood at RM13.5m (-16.4% y-o-y). At a glance, the numbers seem to be in line with our estimate, at 96.8% of  our  full year forecast. Nonetheless, its 4QFY11 numbers  were distorted by  a positive taxation amounting to RM2.8m. Excluding this, its FY11 pretax earnings would have fallen short of both street and our forecasts at 68.3% and 81.6% of the full year estimates respectively.  We attribute this to the slower-thanexpected progress at its LRT extension project, which we understand ran into a snag due to delays in obtaining approvals from certain municipalities, as well as additional costs incurred during the defect liability period for some of its previous projects. By the same token, the 4QFY11 numbers were generally weaker q-o-q and y-o-y, with an EBIT loss of RM3.3m. However, its 4QFY11 net earnings stood at RM2.6m, helped by positive taxation of RM2.8m recognized during the quarter.

MRT play. Despite the disappointing results, we continue to believe that TRC is a strong contender for the elevated works of the KV MRT SBK line as it is the only contractor that has been prequalified for all categories in both the open and  bumiputra portions. We estimate that the company’s outstanding orderbook was worth RM1.5bn as of Dec 2011, with a replenishment target of RM500m p.a. for both FY12 and FY13.

TRADING  BUY.  No major changes to our core assumptions for now. Nonetheless, our FY12 and FY13 core earnings forecasts are  revised marginally downwards by 2.2% and 6.0% to RM25.2m and RM33.4m respectively for book-keeping purposes following  the company’s  full-year results. Maintain  TRADING  BUY, with our FV now revised  lower to RM0.79, based on our SOP valuation  based on  an unchanged 12x FY12 PER to its construction earnings.

Source: OSK188