TA Research said TRC Synergy’s earnings momentum is picking up.
PETALING JAYA: Analysts are optimistic about TRC Synergy Bhd
’s stronger earnings in the quarters ahead driven by contributions from newly secured projects.
The construction and property development group reported revenue of RM106.5mil and core profit after tax and minority interest (Patami) of RM5.4mil for the second quarter for financial year 2024 (2Q24).
Hong Leong Investment Bank Research (HLIB Research) said, in a report, the latest results were within expectations at 54% of full-year forecasts.
“During the previous earnings release, we had already slashed our financial year 2024 (FY24) forecasts by 46%,” the research house noted.
TRC Synergy currently sits on a net cash position of RM267mil, the research house said, adding that the cash pile was on a declining trend quarter-on-quarter from RM322mil previously.
In construction, the group’s unbilled order book stands at a decent RM1bil, with 74% of the projects secured in FY24 year-to-date, HLIB Research said.
“The group’s existing tenders include packages for the expansion of Penang Airport, while sizeable potential near-term opportunities could come from Penang Light Rail Transit (LRT) subcontracts in the first half of 2025,” the research house said.
Meanwhile Based on the latest guidance, MRT Corp expects the Mass Rapid Transit 3 (MRT3) construction in the Klang Valley to commence only in 2026.
“Including delays in our expected timeline for Penang LRT, we see downside risks to our RM1.5bil replenishment assumptions for FY24,” the research house added.
As for property, TRC Synergy highlighted in its earnings release the projected launch delay of the second phase of its Ara Sentral development, which has a gross development value of RM500mil, to 2Q26 from 1Q25 earlier.
Nonetheless, there were no changes to its construction-commencement timeline of 4Q24, with completion up to the podium stage prior to launch to mitigate liquidated and ascertained damages risk.
“We anticipate sequential declines in its net cash position as a result. We are adjusting downwards recognition in FY25 on account of launch delays,” added HLIB Research.
The research house has changed its core Patami forecasts down 7.6% for FY25 and up 23.2% for FY26 on account of delays to the rollout of sizeable tender opportunities and the back-loading of property recognition into FY26.
HLIB Research downgraded the stock to a “hold” call with a target price of 47 sen after adjusting for earnings and cash buffers.
“In our view, the company’s net cash per share previously served as a floor valuation indicator to us.
“However, with projected dwindling of this amount in future quarters, we are cutting assumed cash buffers in our sum-of-parts valuation,” said the research house.
The key positives for the group include contract wins and corporate exercises, while the downside risks are weak replenishment and higher cost pressure.
Meanwhile, TA Research in a note to clients said TRC Synergy’s earnings momentum is picking up.
Excluding a one-off expense of RM400,000, the group’s core earnings of RM5.1mil in the first half of 2024 accounted for 33.3% and 40.2% of its and the street’s full-year estimates, respectively.
“This aligns with our expectations, as we anticipate stronger earnings in the second half of the year, driven by contributions from newly secured projects,” the research house said.
The group’s outstanding construction order book is currently estimated at RM1bil, which is equivalent to about 1.5 times FY23 revenue.
Meanwhile, its year- to-date new-job wins of RM625.3mil provide an earnings visibility for up to the next five years.
Additionally, the construction for the second phase of TRC’s Ara Sentral is expected to commence in 4Q24, which could significantly enhance the property division’s contribution in FY25 and FY26, HLIB Research noted.
The research house has maintained the stock’s target price at 51 sen.
“Given its recent share price weakness, we believe this presents a timely buying opportunity. Hence, we upgrade the stock to a ‘buy’ from ‘hold’ previously,” it added.
