TRC Synergy - OUTPERFORM - 1 Jun 2012

Period    1Q12

Actual vs.  Expectations

 1Q12 net profit of RM1.3m came in below ours and streets estimates, making up 5% and 4% of our FY12E net profit and that of the consensus respectively, due to delays in LRT extension works. 

Dividends   No dividend was declared during the quarter. 

Key Result Highlights

 YoY, 1Q12 revenue reduced by 6% for the same reason as mentioned above. 

 QoQ, 1Q12 pretax was back in the black at RM3.9m compared to last quarter’s loss of RM0.2m. Its property division saw margin expansion to 46% from 4Q11’s 9%. 

Outlook   TRC’s order book currently stands at c.RM1.8b which provides 3-years earnings visibility.

 Management guides that the LRT extension works should pick-up pace in 2H12 as the Development Orders have been obtained in April 2012.

 Based on our channel checks, we believe that TRC will be extending its presence into East Malaysia as they have been actively bidding for dredging works in Samalaju.

Change to Forecasts

 Lowering FY12E estimates by 33% to RM18.2m, as we factor further delays on LRT extension works. But we maintain FY13E earnings at RM44.2m as chain-effect of the earnings delay will materialize in FY14E. We expect LRT project contributions to commence in 4Q12. 

Rating  Maintain OUTPEFORM

 TP of RM0.82 implies 28% upside to current share price which will be buoyed by positive construction news flow and new contracts.

Valuation    We lowered our Target price to RM0.82 from RM0.94 previously based on unchanged 12x PER on average FY12-13E EPS of 6.9sen.

Risks   Further delays in LRT/MRT projects.

Source: Kenanga