This article first appeared in The Edge Financial Daily on May 26, 2017

TRC Synergy Bhd
(May 25, 69 sen)
Upgrade to outperform with a higher target price (TP) of 82 sen: TRC Synergy Bhd started the new financial year strongly with its first quarter ended March 31, 2017 net profit of RM12.1 million (increase circa nine times year-on-year, up 31.5% quarter-on-quarter), driven primarily by revision of project margin for some of its completed projects that have resulted in higher gross margins and foreign exchange (forex) gains.

The results would have been better if not for the write-down of its energy division, which we believe is related to its refinery project in Brunei. After adjusting for forex gains and the write-down for its refinery project, its core 1QFY17 net profit is estimated to be about RM12.6 million, constituting 51% of our full-year estimates.

With the new contact win secured recently from MRT Corp Sdn Bhd, the group’s outstanding order book is estimated to be at RM1.8 billion, ensuring earnings visibility for the next two to three years.

Going forward, we believe the group is still eyeing projects which include LRT3 and Pan Borneo Sabah highway. We understand that the LRT3 tender results should be out in the next one to two months, and believe that TRC Synergy has a good chance to secure at least one package, given its track record in LRT projects. Therefore, job flows for the group is still expected to be good.

The long-awaited Ara Damansara property project is now believed to be at the last stages of finalisation, which consists of service apartments, a hotel, office block and retail mall.

The first launch is expected this year, with gross development value (GDV) estimated at RM1 billion. We understand that the first phase is estimated to be about RM300 million. As such, we adjust our gross margin assumptions slightly higher and revise our financial year ending Dec 31, 2017 (FY17 to FY19) higher by 52%/40%/39% respectively.

Correspondingly, we also revise our TP higher to 82 sen (from 59 sen previously) with a higher multiple of about 11 times (from about 10 times previously) which is still below the sector average mean of about 13 times. TRC Synergy is now upgraded to “outperform” from “trading buy”. — PublicInvest Research, May 25