TRC Synergy Bhd (Nov 10, 64 sen)
Maintain outperform with fair value of 81 sen: TRC is going all out for mass rapid transit (MRT) work packages. Its tender department has been instructed to prepare and put in bids for all 18 above-ground work packages of the Sg Buloh-Kajang (SBK) Line of the Klang Valley MRT project worth a total of RM12 billion to RM13 billion based on our estimate.
For elevated civil works, TRC has a significant edge by virtue of the specialised construction equipment it owns, particularly, the RM20 million girder launcher and gantry that we estimate can translate to a two percentage point margin advantage.
TRC is bullish on the construction market in Brunei, given the tremendous room for basic infrastructure spending including roads, housing, hospitals and universities. Already, TRC in October secured a RM319 million contract for the “modernisation” of Brunei International Airport Terminal.
Brunei is not a new market to TRC. Apart from eyeing basic infrastructure projects, TRC has been pitching for a multi-billion ringgit crude oil refinery and storage project there.
The risks include: (i) new contracts secured in FY12/FY13 coming in below our target of RM300 million per year; and (ii) escalation of input costs.
We have turned positive on the construction sector as there is now even more urgency for the government to expedite the rollout of various public projects to pump prime the economy to shield it against the increased risk of the global economy slipping into a double dip recession.
TRC is one of our top picks for the construction sector given that it is a good proxy to the MRT project, the single largest project that will anchor the current construction cycle.
TRC is the only one of the 28 companies shortlisted to bid for the 18 above-ground work packages that is pre-qualified to bid in all six categories.
Indicative fair value is 81 sen based on 12 times fully-diluted FY12 earnings per share of 6.7 sen, in line with our benchmark one-year forward target price earnings ratio of 10 to 14 times for the construction sector.
An additional downside protection to its share price will come from a strong balance sheet with a net cash of RM118.5 million as at June 30, translating to 25.4sen per share. — RHB Research, Nov 10
This article appeared in The Edge Financial Daily, November 11, 2011.
Maintain outperform with fair value of 81 sen: TRC is going all out for mass rapid transit (MRT) work packages. Its tender department has been instructed to prepare and put in bids for all 18 above-ground work packages of the Sg Buloh-Kajang (SBK) Line of the Klang Valley MRT project worth a total of RM12 billion to RM13 billion based on our estimate.
For elevated civil works, TRC has a significant edge by virtue of the specialised construction equipment it owns, particularly, the RM20 million girder launcher and gantry that we estimate can translate to a two percentage point margin advantage.
TRC is bullish on the construction market in Brunei, given the tremendous room for basic infrastructure spending including roads, housing, hospitals and universities. Already, TRC in October secured a RM319 million contract for the “modernisation” of Brunei International Airport Terminal.
Brunei is not a new market to TRC. Apart from eyeing basic infrastructure projects, TRC has been pitching for a multi-billion ringgit crude oil refinery and storage project there.
The risks include: (i) new contracts secured in FY12/FY13 coming in below our target of RM300 million per year; and (ii) escalation of input costs.
We have turned positive on the construction sector as there is now even more urgency for the government to expedite the rollout of various public projects to pump prime the economy to shield it against the increased risk of the global economy slipping into a double dip recession.
TRC is one of our top picks for the construction sector given that it is a good proxy to the MRT project, the single largest project that will anchor the current construction cycle.
TRC is the only one of the 28 companies shortlisted to bid for the 18 above-ground work packages that is pre-qualified to bid in all six categories.
Indicative fair value is 81 sen based on 12 times fully-diluted FY12 earnings per share of 6.7 sen, in line with our benchmark one-year forward target price earnings ratio of 10 to 14 times for the construction sector.
An additional downside protection to its share price will come from a strong balance sheet with a net cash of RM118.5 million as at June 30, translating to 25.4sen per share. — RHB Research, Nov 10
This article appeared in The Edge Financial Daily, November 11, 2011.
