TRC Synergy - Down But Not Out

TRC’s 1HFY12 topline and core earnings of RM212.8m and RM1.0m respectively were below both our and consensus estimates. The numbers were again undermined by slower-than-expected progress at its RM950m LRT extension as we have highlighted previously. We expect the momentum to pick up progressively in 2HFY12 as all the relevant approvals on the LRT job were secured in April. However, factoring in the subpar 1HFY12 performance, we slash our FY12 forecasts by over 60%. We maintain our TRADING BUY call, with our FV revised up to RM0.83 based on 10x FY13 PER.

Disappointing 1HFY12. TRC’s 1HFY12 revenue of RM212.8m (+5.6% y-o-y) and core earnings of RM1.0m (-88.5% y-o-y) came in at a disappointing 35.1% and 4.2% of our full year estimates respectively as 2QFY12 numbers lagged behind our forecasts. The weak figures were due to the slower-than-expected progress at its RM950m Kelana Jaya LRT extension project, which ran into a snag due to prolonged delays since 4QFY11 in obtaining approvals from the relevant authorities. On a quarterly basis, 2QFY12 revenue registered RM118.1m (+16.8% y-o-y; +24.7% q-o-q) while earnings dived into the red with core losses of RM0.4m on a one-off adjustment in effective tax rate of >100%.

Forecasts revised. Management confirmed that it has obtained all the necessary approvals for the said project in April and construction progress is likely to normalize in 2HFY12. Having said that, we are slashing our FY12 earnings estimate by 61.3% to RM8.8m to take into account the subpar YTD performance. Our FY13 numbers are left largely unchanged. We also take the opportunity to introduce our FY14 forecasts with core earnings of RM45.4m.

TRADING BUY. Given its solid orderbook with RM2bn worth of jobs in hand and with the disappointment in earnings now likely over since the approvals required have been secured to pave the way to begin work on the LRT extension project, we maintain our TRADING BUY call on TRC. Rolling forward our valuation to FY13, our FV now stands at RM0.83 based on 10x PER, from 14x previously, to be in line with its peer in KimLun (BUY; FV RM2.48) and to account for potentially negative sentiment on trading interests in the stock due to results disappointment.

Source: OSK