TRC Synergy Bhd
(March 27, 40 sen)
Maintain neutral call with an unchanged target price (TP) of 54 sen. Granted, TRC Synergy is a good proxy to the Klang Valley mass rapid transit and Sarawak corridor of renewable energy (Score) projects but we believe until there’s stabilisation in the group’s earnings, we would prefer to take a conservative stance. 

That said, the property division might give the necessary earnings boost which could be the rerating catalyst in the near term.

TRC secured another building job last Thursday after announcing that its wholly-owned subsidiary, Trans Resources Corp Sdn Bhd, had accepted the award from Putrajaya Homes Sdn Bhd to construct houses in Putrajaya for RM53.9 million. 

Together with the recent building job, the group has thus far secured jobs worth circa RM114 million in financial year 2015 ending December (FY15). 

By assuming 6% profit before tax, the job is expected to yield circa RM2.5 million of net profit over the construction period. 

No change to our earnings estimates as we have assumed RM500 million in new job replenishment for FY15.

The new job consists of the constructing and rectification works of 50 units of 3-storey semi-detached houses, 10 units of 2-storey semi-detached houses and associated works at Plot 8R7, Precint 8, Putrajaya. 

We believe the new job will be completed within a 12-month period and should start contributing to the group’s earnings in the near term.

Thus far, the jobs clinched are quite small (RM100 million in size) as compared with the two major jobs secured back in FY14 — the Parliament House refurbishment (RM191 million) and KL EcoCity building packages (RM414.6 million). 

Hence, we keep our job replenishment for FY15 unchanged at RM500 million. With the two new jobs bagged, we estimate that the outstanding order book should be in excess of RM1 billion, which would underpin construction earnings for the next few years. 

Although positive, we are still wary of potential margin compressions from cost over-runs and possible delays due to recent site accidents. — PublicInvest Research, March 27

This article first appeared in The Edge Financial Daily, on March 30, 2015.