TRC: Earnings Beat on Cost Efficiency, Future Job Wins Key Amidst Rating Downgrade
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Core earnings for 1HFY25 significantly surpassed both TA Securities’ and consensus full-year expectations, primarily driven by robust cost efficiencies. The company recorded RM14.0 million in core earnings, exceeding 88.2% and 85.6% of the respective full-year estimates.
Performance Review
Revenue saw a healthy 28.6% year-on-year increase, supported by steady progress on ongoing construction projects. Profitability was notably enhanced by easing input costs, which led to stronger-than-expected gross margins. Quarter-on-quarter, core earnings surged an impressive 78.3%, despite a marginal 1.9% dip in revenue, attributed to a weaker contribution from the hotel division during the low season.
Challenges and Revisions
Despite the strong earnings performance, the investment bank highlights concerns regarding the absence of new job wins year-to-date. This has led to a downward revision of annual replenishment assumptions for FY25-27F from RM700 million to RM500 million. Additionally, net cash saw a marginal decrease, settling at RM290.9 million from RM296.6 million a quarter prior.
Future Outlook
The unbilled construction order book stands at RM520 million, representing 1.1 times FY24 construction revenue. Management expresses optimism about securing new contracts by year-end, supported by a substantial tender book of approximately RM1.5 billion. Further earnings prospects could be bolstered by the second phase launch of Ara Sentral in 2QCY26, with an estimated Gross Development Value (GDV) of RM600 million. However, TA Securities maintains a cautious stance, noting that slower-than-expected job replenishment in FY25 raises questions about the company’s competitiveness against stronger rivals, potentially capping near-term earnings growth.
Analyst Rating and Target Price
Following the mixed performance and outlook, TA Securities revised its target price upwards to RM0.37 (from RM0.35), despite lowering its target Price-to-Earnings Ratio (PER) to 8x (from 10x) due to heightened concerns over earnings sustainability. Concurrently, the firm downgraded its recommendation on the stock from Buy to Hold.
