KUCHING: TRC Synergy Bhd (TRC Synergy) is expected to see more pronounced earnings recovery from financial year 2013 ending December onwards underpinned by accelerated billings.
According to RHB Research Institute Sdn Bhd (RHB Research), “The accelerated billings are expected to come from key construction jobs and the first full-year contribution from Ukay Tropika, a sold-out landed residential property project in Ulu Kelang with a gross development value of RM90 million.”
Accelerated billings from the ‘Package A’ main contract of the Kelana Jaya Light Rail Transit (LRT) Line extension project currently has RM700 million outstanding while the Brunei airport expansion projects has RM270 million outstanding.
Among other projects that would help earnings recovery for TRC Synergy includes maiden contributions from newly secured projects such as the Sungai Buloh Depot of the Klang Valley My Rapid Transit project, three elevated stations and a port facility package of Samalaju Port Bintulu.
The predictions trailed an expectation for a weak fourth quarter of 2012 (4Q12) as TRC Synergy was due to release its results for financial year 2012 by February 2013.
“We expect the results to come in at RM11 million to RM12 million at the core net profit level. This will have been within our forecast of RM11.4 million but missed the consensus number of RM15.8 million.”
RHB Research believed that 4Q core net profit would be halved to RM3.3 million to RM4.3 million from RM7.6 million registered in the preceding quarter, predominantly due to a long wet spell during end-2012 that had hampered the progress of key projects in Peninsular Malaysia.
The research house highlighted that ‘Package A’ main contract of the Kelana Jaya LRT Line extension project was one of the most affected projects.
“TRC Synergy told us during a recent meeting that delivering contracts in hand takes precedence of over winning new ones in financial year 2013 given the company’s record contract wins of close to RM1 billion in financial year 2012 and a record outstanding construction orderbook of RM1.95 billion at present.”
The company was also noted to harbour concerns over rising strain on resources in Peninsular Malaysia, particularly subcontracting capacity and the availability of construction equipment. It believed that this might stoke cost pressure.
“However, the company said it will continue to actively bid for jobs in East Malaysia. Riding on its recent success on Ukay Tropika, TRC Synergy is also eyeing more land pockets in the Klang Valley area,” the research house explained.
RHB Research expected construction stocks to trend downwards during the early part of 2013 as the 13th General Election deadline draws closer.
The research house believed that once the dust settles after the elections, investors would refocus on fundamentals of construction stocks that may appear to be reasonably attractive underpinned by a construction upcycle.