TRC Synergy - FY07 net profit within expectations

TRC Synergy - FY07 net profit within expectations (Results Note)
Price: RM2.03
Target Price: RM4.42
Recommendation: BUY

· FY07 net profit of RM29.4m was within our estimates of RM30.6m bring 3.9%. FY07 net profit was largely driven by new contracts secured in early 2007 which are being executed and progress billings. Net profit for 4Q07 typically the strongest quarter compensated for the weaker 3Q07 net profit. It is typical that construction contracts have volatile quarterly results given the different construction lifecycle of each project at any one point in time.

· FY07 net profit was 180% higher YOY as a result resurgence in contracts secured in late 2006 early 2007 which are currently under construction namely, Sepanggar Naval Submarine base, Kuala Trengganu (KT) airport expansion and Dang Wangi police station.

· YOY 4Q07 net profit of RM11.5m was 13x higher given that in 4Q06 netrp ofit of RM0.5m as most of the key projects have not started. In 4Q06. QoQ despite lower turnover of 4%, net profit was sharply higher at 7.4m from 5.4m. This largely due to improved economies of scale, prudent raw material management which compensated for the sharp increases in basic building materials.

· We are maintaining FY08 and FY09 forecast of RM45.9m and RM43.5m respectively. TRC is close to securing the letter of award for KT airport expansion phase 2 and University KL. Together, the projects would add an estimate RM400m to its already sizeable unbilled order book of RM727m making it a total of RM1.1b.

· Maintain BUY with revised target price of RM4.42 (RM4.37) based on FY08 Fully Diluted EPS of 29.5 sen using the average PER of 12x for smaller construction companies. The share is currently trading at attractive FY08E and FY09E PER of 7x respectively.


KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department