• Stay BUY, new MYR0.53 TP from MYR0.50, 58% upside with 3% FY25F (Jun) yield. Gabungan AQRS’ 18MFY24 (Jun) core profit of MYR43.7m beat our estimates, accounting for 115% and 112% of our and Street full-year projections. The positive deviation was due to the stronger-than-expected construction segment. Aside from its track record in previous infrastructure rail projects, its property project in Johor Bahru – The Peak (GDV: MYR603m) – may enjoy further visibility due to its proximity with the Johor Bahru-Singapore Rapid Transit System (RTS) Link station.

• AQRS’ construction segment recorded a core PBT of MYR22.1m in 6QFY24 (or 2QCY24) vs a PBT of MYR0.6m a year ago (in 2QFY24). This was primarily driven by the Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) and Light Rail Transit (LRT) 3 projects. Meanwhile, the property arm booked a pre-tax loss of MYR13.6m in 6QFY24 vs a PBT of MYR7.1m a year ago, due to the recognition of additional costs of E’Island Lake Haven project

• AQRS has a MYR472m outstanding orderbook which we view is reasonable at this juncture, as job awards have yet to pick up. Near-term job wins may be from one of the five LRT 3 stations planned for reinstatement. Importantly, AQRS has managed to pare down its debt by c.MYR81m from 1QCY23 until 2QCY24 – translating into a lower net gearing ratio of 0.26x in 2QCY24 vs 0.33x in 1QCY23. Such headroom should enable it to gear up for the upcoming infrastructure jobs. As for the property arm, earnings are backed by unbilled sales of MYR217m, while future earnings later may come from the Gambang Residensi project in Pahang which has a a c.MYR350m GDV (target launch in late 1QCY25), and also The Peak in Johor.

• As results beat estimates, we increase FY25-26F earnings by 4% and 3% as we impute a quicker recognition of some construction projects. We also introduce our FY27 earnings forecast, which has factored in a job replenishment rate of MYR300m. The net effect of these adjustments brings us to a new SOP-derived TP of MYR0.53, which also has a 2% ESG discount incorporated.

• A catalyst for AQRS includes the rollout of phase 1B of Pan Borneo Highway Sabah that may benefit its 49%-owned precast business, SEDCO Precast. Contracts to supply precast components to the said project are valued at an estimated MYR400-500m. The formation of new property development JVs by AQRS (on top of Gambang Residensi in Pahang) may also be a catalyst. Given the plethora of catalysts and its track record in infrastructure projects (Mass Rapid Transit 1), the stock is presents an attractive investment option – it is trading at more than -2SD below its 5-year mean P/E and the Bursa Malaysia Construction index’s, which justifies our strong BUY call.

• Key downside risks: Failure to secure new contracts and a downturn in the construction sector.

Source: RHB Research - 30 Aug 2024