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Friday, January 18, 2013

TRC Synergy - Recovery On Track (OSK)

Fair Value : MYR 0.83

TRC  announced  that  it  has  secured  a  new  project  from  Jabatan  Kerja  Raya  Sarawak  to
construct a public access road from Sangan to Kapit for a contract sum of RM169.9m. This
work  package  is  part  of  the  Sarawak  Corridor  of  Renewable  Energy  (SCORE)
infrastructure development project.


Off  to  a  great  start.  This is TRC’s first job win in 2013 after  the company secured more
than  RM970m  worth  of  jobs  in  2012. We  deem  it  within  our  expectations,  with  our  FY13
orderbook  replenishment  target  remaining  unchanged  at  RM500m.  With  the company’s
outstanding orderbook  now  totaling  about  RM2.0bn, the jobs  in  hand  may  last  it  well  into
2HFY14, assuming a quarterly burn rate of RM200m-RM250m. More specifically, by award
per  se,  the latest contract is TRC’s second  one  associated  with  the  SCORE  region.  As
such,  we  do  not  discount  the  possibility  of  it  securing  more,  as  management  has  made
known its intention to expand its footprint in the said area.

Earnings  likely  to  improve.  As  the  prolonged  delay  at  TRC’s RM950m  LRT  extension
project has been resolved, we believe the company’s stock may likely see an earnings re-rating  over  the  next  few  quarters.  We  are  reaffirming  our  FY13  and  FY14  net  profit
forecasts of RM38.9m and RM45.4m respectively.

TRADING  BUY. All in, we are positive on the job wins and believe that TRC’s share price
may  be  in  for  a  major  re-rating  as  its  earnings  over  the  next  few  quarters  improve
substantially  now  that  its  LRT  extension  project  is  gaining  pace.  Given  its  sturdy
outstanding  orderbook  of  close  to  RM2bn  and  with  proper  execution,  we  foresee  a  near-term  rebound  in  its  share  price,  which  declined  by  10.9%  in  2012.  Maintain  TRADING
BUY, with our FV unchanged at RM0.83, based on a 10x FY13 PE.

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