Minimal impact from revised LRT3 project on Gabungan AQRS

ALTHOUGH Gabungan AQRS Bhd will be affected by a “scaled down” version of the Light Rail Transit 3 (LRT3), the impact on the company’s overall order book will likely be minimal.

According to its vice-president for strategic planning & investment, Ridhwan Effendy, the mid-cap construction and property development company will likely see a reduction of only RM100mil in its orderbook, following the cancellation of the Temasya station, which is one of the five aborted under the revised version of the LRT3 project.

“The group will definitely be affected, as it is involved in the Temasya station. But it won’t severely dent the group’s prospects because the estimated impact is only RM100mil... which is relatively small against its current outstanding orderbook,” Ridhwan says.

“Nevertheless, we are still waiting for the official documents from the Government in order to fully gauge the impact,” he tells StarBizWeek over the telephone.

The Ministry of Finance (MOF) on Thursday announced that the Government had approved the LRT 3 project, connecting Bandar Utama to Klang, to proceed but at a lower all-in cost of RM16.6bil, compared with the original all-in cost of RM32bil.

This came after two months of uncertainties surrounding several infrastructure projects in Malaysia, including the LRT3 and the East Coast Rail Line (ECRL), following Pakatan Harapan’s victory in the 14th General Election on May 9.

Under the revised version of the LRT3 project, completion date will be delayed by four years to 2024, and five stations with “very low” projected passenger ridership will be cancelled.

These stations are Lien Hoe, Temasya, SIRIM, Bukit Raja and Bandar Botanic.

Despite the ongoing uncertainties in the construction sector under the Pakatan Harapan administration, the growth prospects for Gabungan AQRS appear to remain intact.

For one thing, its outstanding construction orderbook alone, which stood at RM2.5bil as at June 30, is sufficient to support the group’s earnings growth for at least the next three years.

For another, the group will be rolling out its new property projects that could boost its earnings.

By December, Gabungan AQRS will launch its E’Island Residence, an affordably priced high-rise development in Puchong, which will generate total gross development value of RM491mil.

The group’s property development arm, which had unbilled sales of RM127.6mil and unsold property units valued at RM485.7mil as at June 30, is expected to be a significant contributor to cashflow from 2019 to 2022.

Meanwhile, Gabungan AQRS is looking to secure another RM1.5bil worth of construction projects by the end of this year to add to its current outstanding orderbook.

These new jobs are expected come from the infrastructure-related jobs that the group has tendered for such as the Pan Borneo Highway in Sabah and ECRL.

According to Gabungan AQRS group CEO Datuk Azizan Jaafar, the group remains well-positioned to secure new construction and infrastructure contracts under the Pakatan Harapan-led Government, which has promised to use an open tender system to ensure transparency and fairness in awarding projects.

“With the Government’s policy of transparently awarding contracts, the group believes it could be a beneficiary given its strong technical capability, good track record and a solid financial position,” he says.

According to UOB Kay Hian Research, Gabungan AQRS’ chances of securing jobs for the Sabah Pan Borneo Highway and ECRL appear optimistic.

While the ECRL project has been temporarily suspended, UOB Kay Hian Research notes: “Although the Malaysia Rail Link has issued a temporary stop work order to the main contractor China Communications Construction Co recently, we believe this is to facilitate negotiations between the involved parties and is expected to proceed subject to better contract terms agreed to, such as lower construction cost; better direct and indirect participation of Malaysian companies; and an additional RM20bil on top of what has been paid.”

“Gabungan AQRS has submitted the tender for ECRL and believes it stands a good chance of securing part of the construction jobs, given its track record and strong relationship with the government in Pahang where most of the ECRL alignment would be located,” the brokerage says in its report.

On the Sabah Pan Borneo Highway project, Gabungan AQRS remains positive about securing at least one of the work packages.

The group has participated in the bid for two different roles for the project, namely, the contractor for part of the highway, and supplier of precast manufacturing products.

“We are optimistic about its ability to secure the Sabah Pan Borneo Highway project, given that its Sabahan partner, Suria Capital Holdings, is one of the Sabah state’s key investment vehicles,” UOB Kay Hian says.

The research house adds that the value of precast required for the project is about RM2bil.

It has a “buy” call on Gabungan AQRS, with a target price of RM1.86, based on 10 times the group’s estimated earnings for the financial year ending Dec 31, 2019.

It says it likes Gabungan AQRS for the company’s superior orderbook cover, strong position to secure new projects and anticipated strong earnings growth.