Review

• Excluding one-off items amounting to RM4.3mn, TRC reported disappointing core earnings of RM4.3mn in 9MFY24, representing only 28.1% and 33.7% of our and the street’s full-year estimates, respectively. The shortfall was primarily due to a higher-than-expected effective tax rate, driven by non-tax-deductible items, including the reversal of property development costs totalling RM15.1mn.

• YoY, its 9MFY24 revenue declined sharply by 36.0%, mainly attributable to slower progress billing in the construction division and the deferred launch of a new phase in the property development division. Consequently, core earnings fell significantly by 49.1%, largely due to a surging effective tax rate (+35.4 ppt), which was impacted by non-tax-deductible items and an additional tax expense of approximately RM3.6mn arising from the reversal of property development costs.

• QoQ, its 3QFY24 core earnings barely broke even despite a substantial 44.9% revenue growth driven by higher revenue recognition in the construction division. This lacklustre performance was attributed to escalating effective tax expenses, which eroded profitability margins.

• Its net cash position decreased from RM267.0mn a quarter ago to RM255.9mn.

Impact

• Considering the weaker-than-expected results, we adjusted some of our assumptions for progress billing and project margins for certain construction projects. Meanwhile, we also incorporated a higher effective tax rate assumption. Consequently, our FY24-26F earnings estimates were reduced by 39.7%/0.5%/1.5%, respectively.

Outlook

• The group’s outstanding construction order book is currently estimated at RM668.9mn, equivalent to approximately 1.0x FY23 revenue. Additionally, construction for TRC’s Ara Sentral Phase 2 is expected to begin in midDecember 2024, ahead of the property project launch scheduled in 2QCY2026. With an estimated gross development value of RM500mn, this project could significantly boost the property division’s contribution in FY26 and FY27.

Valuation

• We reiterate our Buy call on the stock with an unchanged target price of RM0.51 based on unchanged 12x CY25 EPS.

Source: TA Research - 27 Nov 2024