TRC Synergy Berhad BUY
Price target RM2.50
Share price at 8 Apr RM1.75
Investment summary
Overnight, TRC announced a RM197m construction award from the government. This is within our forecast, and re-affirms our bullish view on TRC: (1) 23% EPS CAGR over FY07-09E, driven by the recent doubling of its win-rate from RM200-300m pa to RM600m; (2) FY08E FD PE of 8x is a 50% discount to bigger peers; (3) high visibility of earnings as current unbilled orderbook of RM924m forms 65% of our FY08-09E revenue forecast.
We are negative on the Malaysian construction sector: (1) recent sharp political changes could lead to a slow-down in government job-flow; (2) construction valuations remain expensive relative to the broader market, despite a peakish macro environment; (3) in most cases, overseas jobs cannot compensate for local govt jobs in terms of profitability.
Taking the long view
Share price has fallen -31% YTD: (1) Mkt sell-down has scared investors away from illiquid small caps. (2) Heightened political risk is affecting sentiment on construction stocks. Neither is likely to change in the next 6 mths. We think TRC is a 2-3 yr punt, given its fundamentals/valuations.
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Tuesday 15 April 2008
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