• Maintain BUY (TP: RM0.40). Gabungan AQRS (AQRS) recorded a 3MFY25 LATAMI of RM5.7mn, falling short of expectations. In 1QFY25, the property segment posted RM10.7mn in revenue but registered a LBT of RM3.0mn, primarily due to RM4.3mn in LADs. Revenue was further impacted by an audit adjustment for E’Island Lake Haven amounted to RM17.0mn related to sales and marketing costs, while RM2.1mn in settlement costs for construction legacy projects also weighed on overall performance. Given the earnings volatility observed in 1QFY25, we are transitioning from a P/Ebased valuation to a Sum-of-Parts (SOP) approach. Besides that, we think this will better reflect AQRS’s diverse operations and better assessment of its unbilled order book and property GDV pipeline. We maintain our BUY call for AQRS, with lower SOP derived TP of RM0.40 (from RM0.49) which implies 21.1x FY25F P/E.

• Key Highlights. Revenue for 1QFY25 came in at RM39.5mn mainly supported by contributions from LRT3, Bandar Enstek School, and E’Island Lake Haven. However, the company recorded an LBT of RM5.7mn due to (i) LADs related to The Peak, (ii) one-off financing expenses, and (iii) costs from the closure of legacy project accounts. Excluding these, core PATAMI stood at RM2.0mn. Meanwhile total debt increased by RM28.4mn QoQ, raising the net gearing ratio to 0.30x from 0.26x. Nevertheless, the recently secured financing facility is set to accelerate the construction of The Peak, targeting full completion by 2025, while covering the remaining development and marketing costs. Currently, The Peak has 403 unsold units with a total net sellable area of 525,000 sqft, valued at approximately RM750psf or RM393.7mn.

• Earnings Revision. We have revised our FY25F/FY26F net profit forecasts down by -76.6%/-71.4% to RM10.5mn and RM13.5mn respectively to account for non-recurring costs occurred in 1Q25 and higher financing expenses.

• Outlook. We remain sanguine on the company’s earnings, underpinned by its construction outstanding order book of RM406.6m, which is expected to sustain earnings and cash flow contributions through FY26-27. Additionally, we foresee stronger contributions from the property division as the company progresses with the delivery of vacant possession for E’Island Lake Haven, accelerates construction at The Peak through newly secured financing, and initiates the first phase of Serena Gambang. These projects collectively represent a combined GDV of approximately RM1.3bn, with earnings anticipated to materialize over FY25-FY29. Enhancing its growth prospects, the company is actively pursuing participation in government PFI projects, providing an opportunity to establish long-term recurring income. Additionally, new property development joint ventures, currently under negotiation, are expected to contribute a GDV of approximately RM400mn.

Source: BIMB Securities Research - 28 Nov 2024