MIDF Research upgrades Gabungan AQRS earnings by 23%

PETALING JAYA: MIDF Research has upgraded its earnings estimates for Gabungan AQRS Bhd by RM8.8mil or 23.03% and RM72.1mil or 16.3% for its revenue estimates on the back of two major developments.

A group of private investors led by Tan Sri David Kong of Nirvana Group has offered to purchase 100% of Monolight IBS Building System Sdn Bhd, which was previously Gabungan AQRS’ 49% joint-venture, in return of 19.56 million shares or 5.01% stake in the construction and property development firm at RM1.33 per share.

Gabungan AQRS has also proposed the placement of 30 million new shares to expand its working capital.

The research house noted that the exercise would enlarge Gabungan AQRS’ shares from 390 million to 409 million shares or 5%.

“These are two catalytic landmarks in the company’s transformation plan.

“The entrance of new shareholders signals Street’s interest and confidence on Gabungan AQRS’s potential upside,” it said in a report yesterday.

It also noted that the shares of Monolight were atypically exchanged with Gabungan AQRS’s proposed new shares instead of RM26mil consideration in cash by the new shareholders.

On the other hand, the placement intends to increase its financial agility to undertake larger projects and ushering strategic cornerstone investors, which the research firm said went hand-in-hand with AQRS’s growth narrative.”

Recall that the company’s management had set three agendas to grow revenue and earnings, namely solidify working capital, growing EBITDA and sustaining margins.

“Now, the management has attained the milestone to strengthen their working capital.

“We suspect Gabungan AQRS’s is preparing to bid for packages under East Coast Rail Link, Pan Borneo Highway in Sabah, mobilising the project team for Kota Kinabalu Waterfront and reducing its financial expenses.”

The placement intends to raise between RM390.3mil to RM550.3mil.

According to MIDF Research the new shareholders’ unique entrance is positive to Gabungan AQRS’ bottom-line.

Consequently it is inevitable for us to upgrade our earnings as Monolight’s projects under PR1MA package amounting to RM424.23mil will be recognised fully on the back of 12.0% profit margin for the duration of 36-months,” MIDF Research said.

Apart from the increase in its earnings estimates, the research house also changed its risk assessment; expressed in its discounted cash flow valuation as 45% certainty equivalent in the expected cash flow projection.

“We believe PR1MA projects have lower risk profile as it is subsidised by the government but risks will flit slightly due to order book size,” it said.