HLG: 28 May 2008 TRC Synergy

HLG: 28 May 2008 TRC Synergy - No surprises 1Q08 results


TRC Synergy Berhad HOLD



Price target RM1.92



Share price at 27 May RM1.80



Investment summary


1Q08 net profit rose 84% YoY, in-line with our forecast but 17% ahead of consensus. We are neutral on TRC because: (1) RM1bn in unbilled orderbook will sustain earnings for the next couple of years. YTD winnings have been RM399m; (2) near term political risk affecting government pump-priming prospects; (3) FY08E FD PE of 8x is a 50% discount to bigger peers. 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.



Buy on dips

Despite strong 1Q08 results and RM399m jobs secured YTD, we are neutral on TRC: (1) TRC trades at a FY08E FD PE of 8x, a 40-50% discount to big-cap construction names; (2) near-term political uncertainty affecting government pump priming; (3) 26% stake in PetroBru enhances LT order book visibility.