News MRT
Co announced that TRC Synergy (TRC) had been
chosen to be the sub-contractor of Syarikat Muhibbah S/B* for the
construction of the MRT station under “Package S1” worth RM284m.
Comments It is
one of the station packages in viaduct Package V1 (RM1.0b) which was awarded to
Syarikat Muhibbah in early May-12.
The news caught us by
surprise as we did not expect TRC to further top up its FY12E new order book
replenishment from RM689m to RM973m.
However, we remain
neutral on the news as we expect the contribution to only materialise in FY13.
Further, there have been delays in a few of its ongoing contracts, i.e.
Dayabumi and Brunei International Airport. The contract value of RM284m above
would be within our FY13 order book replenishment assumption of RM300m.
Outlook The
outstanding order book currently stands at c. RM2.2b, which provides 3 years
earnings visibility for the group.
Going forward, as a
UPK license holder in Sarawak, we believe that TRC stands a higher chance to
secure SCORE based projects like roads and other infra works.
Forecast Nonetheless, we have lowered our FY12E net profit
by 15% from RM18.2m to RM15.4m as we take into consideration of some of its
project delays like the Dayabumi project.
We expect the
upcoming 2Q12 results to come in below ours and consensus estimates due to the delays
in its LRT project.
However, we believe
the recognition of the project contribution will pick up pace from 2H12 onwards
as the LRT project currently has been in full swing since June 2012.
Rating MAINTAIN OUTPERFORM
The stock still have
an attractive upside of 16% to our new TP of RM0.73 given the 22% discount on
the assigned PER of 9x compared to its peers.
Valuation We
lowered our target price by 11% from RM0.82 to RM0.73 based on 9x Fwd PER to
its weighted average FY12-13E (25:75) EPS of 8.1 sen (previously at 12x on
simple average of FY12-FY13E EPS of 6.7sen). We ascribed lower PE as we believe
that the market has accounted the risk of further delays for TRC in executing
its current order book.
Risks Price
escalation in raw materials and labour costs
Source: Kenanga
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