TRC Synergy - Secures KVMRT Package DPT1

News   MRT Co. announced it had awarded 4 MRT packages (V1, V4, V7 and DPT1) of total RM3.2b contract to Syarikat Muhibbah Perniagaan & Pembinaan, Sunway Construction, MTD Construction and Trans Resources Corporation (TRC) respectively. But  there were no Bursa announcements on TRC’s part.  

Comments  

- We are positive on the announcement. The package secured by TRC is DPT1, which involves the construction of Sg. Buloh maintenance depot and administration building worth RM459.0m, increasing actual total orderbook to RM1.8b. The new contract has exceeded our FY12E orderbook replenishment assumptions of RM300m. Construction duration will be 30 months with pretax margin of 5% to 6%. 

- The LRT extension works has been delayed by 2 months, which will push FY12E recognition towards FY13E. However, works are now in full swing as the Development Order (D.O.) has been obtained.  

Outlook  

-The rerating catalyst for TRC will be additional contracts from MRT, ETP-based projects and East Malaysia projects. Hence, for FY12E, we are adding an additional RM300m new orderbook assumption. However, note that any future contract wins, including DPT1, will only start billing in 2H12 onwards. 

Forecast  - Although the contract wins, plus our additional orderbook replenishment, has boosted our assumed total orderbook significantly to RM2.1b, there will not be much recognition in FY12 as most of it will be felt in FY13. Additionally we had to push previous contract recognitions to FY13E due to the delays. As a result we reduce our FY12E earnings by 9% to RM26.8m, but step up FY13E net profit by 57% to RM44.2m. 

Rating  UPGRADE TO OUTPERFORM

- We have upgraded our recommendation to OUTPERFORM from MARKET PERFORM given total return upside of 27%. 

Valuation

- Increase our TP to RM0.94 from RM0.77, based on unchanged 12x PER on average FY12-13E EPS of 7.8sen (previously based on FY12E EPS of 6.4sen). We believe the market is looking forward to FY13 earnings boost and has already priced-in delays of FY12 contract roll-outs. As a result, we partly roll-over valuations to FY13E. 

Risks

- Delays in execution and higher than expected building material prices.   

Source: Kenanga