TSR Capital - Buy on weakness

INVESTMENT MERIT

• Back into the black. In FY11, TSR Capital (“TSR”) dipped into the red due mainly to losses in its highway project in the East Coast (Package 4 & 7). However, management is confident that FY12 will  definitely be a comeback year for the group as all the losses in FY11 has been fully recognised coupled with its recent contract award of RM330m from MRT Co, which will be a boost to the group’s earnings over the next 4 years.

• Order book of RM480m for next 4 years.  Riding on its recent contract award from MRT Co. worth RM330m, its outstanding order book has ballooned from RM150m toRM480m, which represents 4.05x of its FY11 revenue. This would likely provide earnings visibility to the group for the next 3-4 years. 

• Launching Port Dickson project.  TSR’s 70-acre flagship development namely PD Waterfront with an overall GDV of RM1b is expected to be completed in 5 to 8 years. The group will be launching the 2^nd  phase of the project by year-end comprising of 3-4 stars hotel and serviced apartment with a combined GDV of RM130m. This is expected to provide TSR with a steady recurring income at c. RM4-5m per annum.

• Buy on weakness. However, based on the current price of RM0.80, the stock is trading at c. 7x PER FY13E, which is below our average targeted PER for small to mid-cap construction stocks of 8x. Thus, we have projected a fair value of RM0.87 for TSR (based on 8x PER FY13E). We advise investors to buy the shares on weakness on any falls in the stock price.

SWOT ANALYSIS

• Strength:  Strong track records in civil construction works and the ability to secure government projects, i.e. prisons, highways, MRT. 

• Weaknesses:  Heavily dependant on government related projects. The MRT project is its biggest contributor (68% of the current order book).

• Opportunities:  Further participation in Public-Private Partnership/Private Finance Initiative projects due to its proven track record in executing government related projects in the past.

• Threats: Escalating building material cost and labor shortage, which could compress its margins.

TECHNICALS

• Resistance: RM1.00 (R1), RM1.17 (R2)

• Support: RM0.79 (S1), RM0.70 (S2)

• Outlook: S-T (Neutral), M-T (Negative), L-T (Negative)

• Comments:  TSR’s share price has been on a long term downtrend spanning 2 years. However, support appears to be developing at RM0.78-RM0.80 and the share price is  also trading close to its historical lows. Investors with a long-term view may be well served to buy in at these levels.

BUSINESS OVERVIEW

TSR Capital is principally involved in construction and civil engineering works, manufacture and marketing of precast concrete products, investment holding, project management, property investment and development. TSR Capital’s core businesses are construction, civil engineering and geotechnical works. The company is also involved in the manufacture, trading and marketing of pre-cast concrete products. 

BUSINESS SEGMENTS

• Construction.  Core business focusing on contruction projects mainly from the government i.e. highways, prisons, hospital, MRT, etc.

• Property.  Its property division is primarily involved in property development activities with its latest developments being TSR corporate office and the PD Waterfront project.

• Manufacturing.  It manufactures pre-cast products, which supports the groups core business i.e. construction and property development.

Source: Kenanga