TRC Synergy Berhad - Construction Outfit Flying Under the Radar
Fri, 29-Mar-2024 08:17 am
by Research Team • Apex Research

Counter

TRC (5054)

Target Price (RM)

0.67

Recommendation

Not Rated

Investment Highlights

  • Well established infrastructure constructor. TRC Synergy Berhad (TRC) is a construction company specialises in diverse projects, including railways, highways, bridges, airports, submarine bases, port structures, prisons, stadiums, and high-rise buildings.

  • Eyeing on a slice of MRT 3 development MRT3 Circle Line represents the final critical route required to complete the urban rail network in Kuala Lumpur, with its 50.8km alignment encircling the outskirts of the city. This project presents a significant opportunity for TRC, whom is among the bidders for the CMC301 packages, estimated at a value of RM3bn. Following the Group's track record of participation in mega railway projects such as MRT 1 & 2, LRT 3, and Depot, we believe TRC is well-positioned to secure a portion of this development. Should TRC unable to secure the turnkey contract for the development, we expect the Group to benefit from subcontracting works.

  • Aggressive tender. After experiencing slower job replenishment in recent years, we anticipate TRC prospects will mark turning point in 2024, driven by the optimistic outlook of the construction sector in Malaysia. Potential improved sentiment is supported by several ongoing high-profile infrastructure projects. We gather that TRC be more capitalising on the favourable costing environment and increased opportunities. This is evident in the recent contract wins, such as the Subang airport and flood mitigation projects. We expect new orderbook replenishment over the near term will uplift outlook.

  • Sizable war chest and undemanding valuations. TRC is operating in a net cash position of RM311.7m in FY23 and this translates to 1.4x of its current market cap. With c.RM100m of performance bond to be refund of 2024, we expect a more solid balance sheet to be equipped with stronger with further capacity to undertake expansions of additional projects. Meanwhile, with the cash rich position will enhance pricing competitiveness in project bidding and improved margins through internal financing of projects, rather than relying on bank loans and incurring interest expenses for construction and property development.

  • Well-positioned as Bumiputera contractor. As a publicly listed Bumiputera contractor, TRC is well positioned in Government mandate over the involvement of Bumiputera companies to promote broader socio-economic progress. TRC's status as both a Bumiputera contractor and a listed entity positions it favourably to fulfill these obligations, granting it a competitive edge over its counterparts. Moreover, TRC predominantly secures government-related projects, indicating its potential to capitalise on the government's substantial investments in infrastructure development.

  • Political tailwind to accelerate infrastructure development. Following the political uncertainties experienced between 2018 and 2022, the political tailwind allows current Government to prioritise driving multi-billion Ringgit infrastructure development projects. With its robust balance sheet and proven track record, TRC is well-equipped to vie for contracts in major infrastructure endeavours such as MRT3, KUTS, Sabah Sarawak link road phase 2, Pan Borneo phase 1B, Penang LRT, and others. Additionally, the successful bid for the inaugural flood mitigation project from the government places TRC in prime position in securing further flood mitigation contracts in 2024, particularly from RM11.8bn high-priority flood mitigation infrastructure project

  • A foot in East Malaysia development. We believe TRC will be able to capitalise from a multitude of opportunities arising in the development sector of East Malaysia, having effectively executed numerous projects and maintained close partnerships with two Bumiputera companies based in East Malaysia. Considering the relatively limited experience of local East Malaysian firms in handling large-scale infrastructure projects, we are confident that TRC is primed to leverage the region's swift development and forthcoming substantial infrastructure investments.

  • Property development boost. The property development segment serves as a stable revenue stream for the Group, providing a buffer against potential challenges in procuring construction projects. TRC's flagship property project, Ara Sentral, with a total indicated GDV of approximately RM1.1bn, has achieved 100% take-up rate in Phase 1. The Group plans to commence Phase 2 in the 3Q24, with a launch scheduled for the 3Q25. We expect that progressing into Phase 2 will enhance the Group's earnings from property development segment.

  • Hotel business in Australia. TRC possesses full ownership of a 4-star hotel in Melbourne, Australia, known as Element. Channel checks indicated that current estimated value of the hotel stands at approximately RM200.0m. Given TRC's current market capitalisation of RM223.0m, we believe the hotel's value isn't entirely reflected in the Group's books. We gather that the Group might be contemplating to dispose the hotel due to a low occupancy rate resulting from a decrease in tourist arrivals from China. Should the Group opt to divest the hotel business, the move may potentially strengthen the company's cash reserves and facilitates more efficient allocation of resources to its domestic construction projects.

  • Undemanding valuations. Presently, TRC trades at a forward Price-to-Earnings Ratio (PER) of 10x and a Price-to-Book (PB) of 0.4x. By contrast, the Bursa construction index boasts an average forward PER of 15x and a forward PB of 0.9x. Despite these favourable aspects, we perceive TRC's shares to be undervalued, potentially due to lack of awareness due to limited coverage from research houses. We arrive a target price of RM 0.67/share by pegging P/E multiple of 15x to FY24F EPS of 4.45 sen. The assigned P/E are in line with Bursa Malaysia Construction index of forward P/E in 2024F at 15x, this also translates to a P/B ratio of 0.58x, which is lower than the industry average of 0.9x.
Read more details in:

Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.431349 4.466109
EUR 4.725230 4.729698
CNY 0.615997 0.616606
HKD 0.569934 0.573901
SGD 3.315285 3.338615