TRC (FV RM0.75 - TRADING BUY) 1QFY12 Full Steam Ahead For 2H12

TRC’s  1QFY12 topline and core earnings  of RM94.7m and RM1.3m respectivelywere  below both our and consensus estimates. The  numbers were again undermined  by slower-than-expected progress  at  its RM950m LRT extension, similar to what happened in 4QFY11. That said, we expect  the momentum to pick up progressively  in 2HFY12 as  all  the relevant  approvals  on the  LRT  job were secured in April. We  maintain  our  TRADING BUY call,  with our FV  at a slightly lower RM0.75.

Disappointing 1QFY12.  TRC’s 1QFY12 revenue amounted to RM94.7m (-5.8% y-o-y; flattish q-o-q) while earnings stood at RM1.3m (-77.2% y-o-y;  -47.4% q-o-q). Both numbers  lagged behind our forecasts, accounting for  15.0% and 5.3% of the annual estimates respectively. We attribute this to the slower-than-expected progress  at  its RM950m  Kelana Jaya LRT extension project, which ran into a snag due to delays in obtaining approvals from the relevant authorities, which the company also encountered in 4QFY11. Having said that, we understand from management that it has obtained all  the necessary approvals for the  said  project in April and construction progress is likely to normalize in 2HFY12. Out of the RM950m project value,  some  RM100m has been recognized in TRC’s books.

Look forward to a better 2HFY12.  Having secured the RM459m contract  for the construction of the Sungai Buloh depot as part of the  KV MRT,  TRC’s outstanding orderbook now stands at RM1.7bn, which should last the company for more than 2 years. Although the execution has been slower than expected, with an anticipated flat 2QFY12 ahead, we expect TRC’s earnings to  normalize in 2HFY12, driven by its LRT extension project. Nonetheless, factoring in the likely subpar earnings in 1HFY12, we are  revisiting our model and slashing our FY12 net profit estimate by 17.6% to RM20.7m while leaving our FY13 numbers unchanged.

TRADING BUY. Given its solid orderbook with RM1.7bn worth of jobs in hand and with the disappointment in earnings  possibly  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. Following our earnings revision,  our FV now  stands at RM0.75, based on an unchanged 14x FY12 PER on its construction earnings.

Source: OSK