TRC Synergy Bhd (8 April 2025)

Apr 8

(1) Historical performance

By compare the company sales/earnings to its market price, I found that the company stock price has shown volatility without close resemblance with the company sales/earnings level. The construction division, which drives much of TRC Synergy Berhad’s business (76% of total revenue as of 2023), relies heavily on government contracts for infrastructure projects like highways, rail systems, and public facilities. While property development adds some private sector exposure, the scale and prominence of government-linked projects in the company’s portfolio make it clear that its business is closely tied to the public sector.

So, the fluctuation of the stock price might be highly linked to the announcement or expectation of the securement of government projects. Since the company recognised its sales/earnings according to percentage of complete basis, there will be minor or low correlation between the company stock price and its sales/earnings.

Here is the projects breakdown (2008-2024)

2008

Sapangar Bay Submarine Base (RM318 million) – Government Project
A military facility for the Royal Malaysian Navy.
Kuala Terengganu Runway Extension P4 (RM202 million) – Government Project
An airport infrastructure project commissioned by the government.
Sibu Bawang Assam Road (RM222 million) – Government Project
A public road infrastructure project in Sarawak.
IPD Dang Wangi (RM125 million) – Government Project
Construction of a police headquarters for the Malaysian government.
Warehouses in Bintulu for Bintulu Port Sdn. Bhd. (RM88.8 million) – Government-Linked Project
Bintulu Port Sdn. Bhd. is a government-linked company under the Sarawak state government.
Turnkey Project for Upgrading Air Traffic Systems in Tawau and Sibu (RM11.6 million) – Government Project
Air traffic system upgrades for the Civil Aviation Authority of Malaysia.
Additional Work for Sapangar Bay Submarine Base (Umbilical Services, RM92.8 million) – Government Project
Additional services for the government’s submarine base.
Maritime College in Kuantan (RM218.0 million, awarded post-year) – Government Project
A tertiary education facility likely funded by the Malaysian government.

2009

Civil Work Contract for Housing Project in Australia (RM12.9 million) – Private Project
A residential project in Australia, not tied to any government entity.
RTG G-Block and Associated Works at Northport, Malaysia (RM45.9 million) – Government-Linked Project
Northport is operated by Northport (Malaysia) Bhd, a government-linked entity.
Rectification Works for Government Apartments in Precinct 5, Putrajaya (RM20.3 million) – Government Project
Repairs for government housing in the federal administrative capital.
Completion of Sepanggar Bay Submarine Base (RM410 million) – Government Project
Finalization of the military base project.
Completion of Kuala Terengganu Runway Extension P4 (RM202 million) – Government Project
Completion of the airport runway extension.

2010

Kelana Jaya Line Extension Project (Package A) (RM950 million) – Government Project
A light rail transit extension under Malaysia’s public transportation system.
Completion of Sibu Bawang Assam Road (RM222 million) – Government Project
Completion of the Sarawak road project.
Completion of IPD Dang Wangi (RM125 million) – Government Project
Completion of the police headquarters.
Warehouses for Bintulu Port (RM88 million, ongoing) – Government-Linked Project
Continuation of the Bintulu Port warehouse project.
Maritime College Kuantan (RM218 million, ongoing) – Government Project
Ongoing construction of the maritime college.
Northport Container Terminal Klang (RM45.9 million, ongoing) – Government-Linked Project
Continuation of works at Northport.

2011

Modernisation of Brunei International Airport – Government Project
An airport upgrade commissioned by the Brunei government.
Kelana Jaya Line Extension Project (RM950 million, ongoing) – Government Project
Continuation of the LRT extension.

2012

MRT-Construction and Completion of 3 Elevated Stations in Sg. Buloh and Kota Damansara (RM283.6 million) – Government Project
Part of Malaysia’s Mass Rapid Transit (MRT) system.
MRT – Construction and Completion of Sg. Buloh Depot (RM458.9 million) – Government Project
Depot construction for the MRT system.
Sangan Sungei Anap Road Package, Sarawak (RM169.9 million) – Government Project
A rural road project in Sarawak.

2013

Access Road Project from Sangan to Kapit, Sarawak (RM169.9 million) – Government Project
Another Sarawak road infrastructure project.

2014

New Projects Worth RM665.6 million – Government Projects (Assumed)
Specific projects not detailed, but given TRC’s history, these are likely government-related (e.g., infrastructure).

2015

New Projects Worth RM239.51 million – Government Projects (Assumed)
Likely government-related based on the company’s focus.
"PPA1M" Putrajaya Housing Scheme (RM292 million) – Government Project
Affordable housing for civil servants in Putrajaya.

2016

Pan Borneo Highway in Sarawak (Phase 1: Btg Skrang to Sungai Awik Bridge) (RM1.3 billion) – Government Project
A major federal highway project.
Projek Mass Rapid Transit Lembah Klang: Jajaran Sungai Buloh-Kajang Package (RM103.8 million) – Government Project
Part of the MRT Line 1.
Associated Works between Pasar Seni LRT Station and Kuala Lumpur KTM Station (RM103.8 million) – Government Project
Rail connectivity improvements.
Extension of Sungai Buloh MRT Depot (RM80 million) – Government Project
Expansion of the MRT depot.

2017

Rail Infrastructure Projects (MRT and LRT Depots and Guideway Construction) – Government Projects
Ongoing rail developments under Malaysia’s public transit initiatives.

2018

Maktab Rendah Sains Mara (MRSM) in Ranau for Petronas (RM609 million) – Government-Linked Project
Petronas, a government-linked oil and gas company, commissioned this educational facility.
Mixed Development in Precinct 8, Putrajaya for Putrajaya Holdings – Government-Linked Project
Putrajaya Holdings is a government-linked entity under the Ministry of Finance.

2019

Mint Modernization for Bank Negara Malaysia (RM118.8 million) – Government-Linked Project
Bank Negara Malaysia, the central bank, is a government entity.
Prasarana Headquarters (RM99.5 million) – Government-Linked Project
Prasarana Malaysia Berhad manages public transportation and is government-owned.
Ara Damansara Condominiums (In-House, RM135 million) – Private Project
An in-house property development by TRC Synergy.

2020

MRT2 Project (RM114 million) – Government Project
Part of the MRT Line 2 expansion.

2021

Completion of MRT2 Serdang Depot – Government Project
Depot for MRT Line 2.
MRT2 Guideway Package V205 (Ongoing) – Government Project
Continuation of MRT Line 2 construction.

2022

Completion of MRT2 Guideway Package V205 – Government Project
Finalization of the MRT Line 2 guideway.
Completion of Phase 1 of Mint Modernization for Bank Negara – Government-Linked Project
Completion of the central bank’s modernization project.
Participation in RM3 billion MRT Line 3 Tender – Government Project
Bid for the upcoming MRT Line 3.

2023

Remedial Works for Prasarana Berhad – Government-Linked Project
Maintenance work for Prasarana’s infrastructure.
Flood Mitigation Project in Empangan Batu, Gombak, for Jabatan Pengairan dan Saliran Malaysia (JPS) (RM38.9 million) – Government Project
A flood control project by the Department of Irrigation and Drainage.

2024

Structural Strengthening Facility at Empangan Batu Gombak, Selangor – Government Project
Infrastructure strengthening for a government dam.
Refurbishment of Main Building and Infrastructure Works at Subang Engineering Complex A, Sultan Abdul Aziz Shah Airport – Government Project
Airport facility upgrades.
Architectural, Structural, and Civil Works for Transformation of Sarawak State Legislative Building – Government Project
Renovation of a state government building.
Maintenance Facilities at Royal Malaysian Navy Submarine Base in Sepanggar Bay, Kota Kinabalu – Government Project
Military base maintenance.

Summary of Project Categories

Government Projects:

Dominant category, including MRT, LRT, Pan Borneo Highway, airport runways, submarine bases, government buildings (e.g., IPD Dang Wangi, Sarawak State Legislative Building), and flood mitigation projects.

Government-Linked Projects:

Projects for entities like Bintulu Port Sdn. Bhd., Petronas, Putrajaya Holdings, Prasarana Malaysia Berhad, and Bank Negara Malaysia.

Private Projects:

Limited in scope, including the Australian housing project (2009) and Ara Damansara condominiums (2019).

As you can see, during years 2010-2011, share price spiked, maybe due to this near RM1 billion project, Kelana Jaya Line Extension Project (Package A) (RM950 million). The same stock spiked in year 2017 also might be due to the Pan Borneo Highway in Sarawak (Phase 1: Btg Skrang to Sungai Awik Bridge) (RM1.3 billion). The small share spike in 2018-2019 also might be due to project Maktab Rendah Sains Mara (MRSM) in Ranau for Petronas (RM609 million).

During 2023-2024 period, there is no big billion projects being secured. So, this might explain the stagnant share price. So in short, this company future performance is hinged on successful tender on government projects.

(2) Current trend and how to profit from

In 2024 outlook section, TRC Synergy Berhad continues to project an optimistic outlook. The company sees significant potential in large-scale infrastructure projects, such as MRT3, Pan Borneo Sabah, and Penang LRT, driven by the Malaysian government’s commitment to infrastructure development.

Here are some potential projects which the company can benefits from

1. Transportation Infrastructure Projects

The continued investment in transportation infrastructure, including rail networks and highways, which are core strengths for TRC Synergy Berhad.

Rail Projects: The Penang Light Rail Transit (LRT) Mutiara Line, with an estimated cost of RM13 billion, is a flagship project aimed at enhancing urban mobility. TRC Synergy Berhad has prior experience with rail infrastructure, having worked on MRT and LRT projects. This positions them as a strong contender to bid for civil works or related contracts on the Mutiara Line, particularly for segments like Silicon Island to Komtar or the extension to Penang Sentral. Their familiarity with urban transit systems could give them a competitive edge in securing these high-value contracts.
Highway Developments: The Pan Borneo Highway remains a critical project in East Malaysia, with the rehabilitation of the 136km Pan Borneo Highway Redline allocated RM120 million. TRC Synergy Berhad has already contributed to the Pan Borneo Highway, giving them a proven track record and local expertise. This experience makes them well-placed to secure contracts for rehabilitation works or future expansions, enhancing connectivity in Sabah and Sarawak.

By targeting these transportation projects, TRC Synergy Berhad can tap into stable, long-term revenue streams while contributing to Malaysia's infrastructure connectivity goals.

2. Defense Infrastructure Projects

Significant investments in defense facilities, especially in East Malaysia, align with TRC Synergy Berhad's past successes in military construction.

RMAF Base in Sarawak: The 48-hectare Royal Malaysian Air Force (RMAF) Bare Base near Bintulu, set to begin construction in November 2024, is a strategic project. TRC Synergy Berhad’s experience with defense infrastructure, such as the Sapangar Bay Submarine Base, suggests they possess the expertise and security clearances needed to bid for this contract. Their ability to deliver on high-security projects could make them a preferred choice.
Naval Headquarters in Bintulu: The Royal Malaysian Navy’s Region 4 Naval Headquarters (MAWILLA 4) in Bintulu is another priority project. With their background in military infrastructure, TRC Synergy Berhad is well-positioned to compete for this contract, especially given its strategic importance and alignment with their existing portfolio.

These defense projects offer substantial contract value and the opportunity to strengthen TRC Synergy Berhad’s reputation in a specialized, high-stakes sector.

3. Flood Mitigation Projects

Flood mitigation is a growing priority, with RM945 million allocated for 119 projects in 2024 alone. While TRC Synergy Berhad’s specific experience in this area is not detailed, the construction sector often allows for diversification.

Opportunity for Expansion: Projects like the Sungai Damansara and Sungai Kelantan flood mitigation initiatives require significant construction expertise. If TRC Synergy Berhad can showcase relevant capabilities—either through past projects or by partnering with firms specializing in flood mitigation—they could enter this lucrative market. The scale of investment suggests ample contract opportunities for adaptable construction firms.

This sector represents a potential growth area, particularly as climate change drives demand for resilient infrastructure.

4. Regional Development in East Malaysia

The government’s focus on reducing regional disparities, especially in East Malaysia, with RM12.6 billion allocated for Sabah and Sarawak under Budget 2025, plays to TRC Synergy Berhad’s strengths.

Established Presence: TRC Synergy Berhad has a history of successful projects in East Malaysia, including the Pan Borneo Highway and the Sapangar Bay Submarine Base. This local experience, combined with established relationships, positions them favorably for future projects like the proposed international airport in southern Sarawak or additional road and utility developments.
Strategic Advantage: Their familiarity with the region’s logistical and operational challenges could give them an edge over competitors, making them a go-to contractor for regional infrastructure initiatives.

This focus on East Malaysia aligns with both government policy and TRC Synergy Berhad’s operational footprint, offering a clear pathway to secure contracts.

Here are some challenges though:

· Smaller Project Scales: The shift away from mega projects may result in smaller, more targeted contracts, potentially reducing overall contract values. The company will need to adjust its bidding and resource allocation strategies accordingly.

· Increased Competition: Fiscal responsibility may lead to more competitive bidding, squeezing profit margins. TRC Synergy Berhad must balance cost-effectiveness with quality to remain viable.

So, this company is not on sunset business segment, but hinged on uncertain future projects, being on the scale and value of projects secured, plus with the heighten competition in construction segment, the current low market share price might reflect these situations.

(3) Financial performance

Balance sheet quality

Since 2019, the company has significantly strengthened its balance sheet, evidenced by a notable improvement in net current assets driven by a reduction in total liabilities, including lower accounts payable, debt, and contract liabilities. As of December 2024, the company boasts a robust cash and short-term investment position of RM330 million, with cash balance improvements since 2021 attributed to better realization rates of accounts receivables and reduced inventory levels. The balance sheet reflects a prudent approach to contract management, with contract liabilities exceeding contract assets, indicating that the company frequently receives cash upfront rather than waiting to bill for completed work. Operating with a low-leverage business model, the company’s cash position is not reliant on external financing. However, while the market priced the company at or above its net-net current asset level before 2020, since 2021, its market capitalization has fallen significantly below this threshold, despite no significant dilution of shareholdings or destruction of capital. This suggests the market may be undervaluing the company’s solid financial foundation.

Earnings and Cash Flow Quality

The company maintains stable gross and net income margins, though it shows no clear growth trend in sales or earnings, reflecting a steady but stagnant earnings profile. Its business model, rooted in construction and government contracts, recognizes revenue based on completion rates—a subjective method that smooths earnings but leads to volatile cash flows due to the lump-sum nature of receipts. Despite this inconsistency, the company has consistently generated free cash flow (FCF) from 2011 to 2024, with total cash from operations exceeding total net income, highlighting the high quality of its earnings. Dividends paid are comfortably covered by FCF, underscoring strong dividend quality. Public perception, however, lacks significant growth expectations, likely contributing to its undervaluation. Nevertheless, the company’s ability to sustain FCF, maintain stable margins, and strengthen its balance sheet over the years positions it favorably for potential share price appreciation if catalysts, such as new project awards, emerge in the future.

(4) Company characteristics

Strengths

1. Proven Expertise in Government Infrastructure Projects

TRC Synergy Berhad has established a strong reputation for securing and executing large-scale government contracts, particularly in rail infrastructure projects such as the MRT and LRT. Over the years, the company has successfully delivered significant projects, including:

The Kelana Jaya Line Extension (RM950 million, awarded in 2010).
The MRT Sg. Buloh Depot (RM458.9 million, awarded in 2012).
The Pan Borneo Highway (RM1.3 billion, awarded in 2016).

Additionally, the company’s ability to complete projects ahead of schedule—such as the PERLA residential project, finished three months early in 2022—demonstrates operational efficiency and reliability. This expertise positions TRC Synergy favorably for future government-led initiatives, such as the MRT3 and Pan Borneo Sabah projects.

2. Diversified Business Model

The company operates across multiple segments, including construction, property development, and international ventures in markets like Australia and Brunei. This diversification mitigates risks associated with dependence on a single revenue stream. For example:

In 2023, the property development division contributed 21% of revenue (up from 12% in 2022), offsetting challenges in the construction segment.
Overseas projects, such as the Brunei International Airport modernization in 2011, expand the company’s geographic footprint.

This multi-faceted approach enhances resilience during sector-specific downturns and supports long-term stability.

3. Robust Balance Sheet and Financial Stability

TRC Synergy Berhad has significantly strengthened its financial position since 2019, as evidenced by:

Reduced liabilities: Lower accounts payable, debt, and contract liabilities.
High liquidity: Cash and short-term investments totaled RM330 million as of December 2024.
Low leverage: A net cash position with no reliance on external financing.

This strong balance sheet provides the company with flexibility to pursue new opportunities and weather economic uncertainties.

4. Consistent Free Cash Flow Generation

Despite the lump-sum nature of contract payments, TRC Synergy has consistently generated free cash flow (FCF) from 2011 to 2024. Total cash from operations exceeds net income, reflecting high-quality earnings. The company’s ability to cover dividend payments with FCF underscores its financial discipline and supports shareholder confidence.

5. Stable Profitability Margins

The company maintains stable gross and net income margins, even in challenging economic conditions. Notable examples include:

Gross margin maintained around 4-7% during normal times, where 9-11% during good times
Net margins held steady at 2-4% since 2011, only in 2013 2014 where the company has 0-1% margins.

This consistency highlights effective cost management and operational efficiency, key strengths in a competitive industry.

Weaknesses

1. Challenges in Replenishing the Order Book

TRC Synergy has struggled to consistently secure new construction contracts, raising concerns about future revenue sustainability. For instance:

In 2022, the construction division won no new projects.
In 2023, only two smaller projects worth RM38.9 million were secured, despite bidding on tenders worth RM5.0 billion.

This difficulty in replenishing the order book could hinder growth as existing projects near completion, making it critical for the company to win new contracts.

2. Exposure to Cyclical Markets and Underperforming Ventures

The property development division is vulnerable to cyclical market fluctuations, which can affect demand and profitability. Furthermore, some international ventures have underperformed:

The hotel division in Australia (Element by Westin) reported losses of AUD 42,000 in 2020, RM2.51 million in 2022, and RM2.76 million in 2023, impacted by pandemic-related travel restrictions and market challenges.

These underperforming segments drag down overall profitability and expose the company to external risks.

3. Intense Competition and Market Challenges

The construction industry’s intense competitiveness, especially in open tender bidding, has significantly impacted the company by reducing profit margins and complicating efforts to secure new contracts. In years such as 2010, 2016, 2018, and 2019, the company faced heightened competition that often forced it to submit lower bids, squeezing profitability and making consistent growth challenging.

4. Volatile Cash Flow Patterns

The company’s reliance on construction and government contracts results in volatile cash flows due to the inconsistent timing of lump-sum payments. While TRC Synergy generates FCF, this volatility complicates financial planning. The balance sheet shows higher contract liabilities than assets, indicating upfront cash inflows that must be carefully managed to cover project costs over time.

5. Labor and Supply Chain Disruptions

Labour shortages, particularly of skilled workers, combined with the company’s reliance on foreign labour, have created operational inefficiencies and vulnerabilities to policy shifts. In years like 2017, 2020, and 2021, these labour challenges led to delays in project execution and increased costs, as the company navigated a tight labour market and changing immigration regulations. Additionally, supply chain disruptions have escalated operational expenses, driven by rising material costs—such as steel and cement—and inflation, with notable impacts in 2022 and 2023. These issues have made it difficult for the company to control costs and deliver projects on time and within budget, putting further pressure on overall profitability.

6. Market Undervaluation and Investor Perception

Since 2021, the company’s market capitalization has remained below its net current asset level, despite a strong balance sheet and no significant share dilution or capital erosion. This undervaluation suggests that investors perceive limited growth prospects, possibly due to stagnant earnings and order book challenges. The lack of market confidence could restrict the company’s ability to attract investment or achieve a higher valuation.

(5) Valuation

As of April 8, 2025, the company's market capitalization stands at approximately RM132 million, a level significantly below its net-net current asset and cash balance. Between 2011 and 2024, the company achieved an average annual revenue of about RM700 million.

In a no-growth scenario, assuming sales of RM500 million—roughly equivalent to 2024 levels—and a 3% net profit margin, the company would generate RM15 million in net profit. Capitalizing this at a 15% required return yields a business value of RM100 million, which falls short of the current market cap. However, if sales increase to RM600 million, still below the historical average, the capitalized value rises to RM120 million with the same 15% required return, aligning closely with the current market sentiment.

Profit scenario

If the company can return to its historical average revenue of RM700 million, maintaining a 3% profit margin, and benefit from improved market sentiment reflected in a lower 10% discount rate, its business value could reach RM210 million, or approximately RM0.45 per share. This represents a potential 60% profit upside from the current share price of RM0.28. Additionally, the current market price mirrors the depressed levels seen during the COVID-19 period, and with a dividend yield of around 4.4%, the stock offers a significant margin of safety, suggesting it may be undervalued relative to its growth prospects.

So, the potential future performance is cling on (1) more contracts tendered (2) better market sentiment from securing big-mega projects in future (potential projects referred to section 2 above).

Quah Hong yun