Analysts reassess Gabungan AQRS after share price trade in line with target price

KUCHING: The research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) has been prompted to reassess its view on Gabungan AQRS Bhd (Gabungan AQRS) as the group’s share price recently traded in line with its target price.

MIDF Research recalled that Gabungan AQRS’s current orderbook is RM1.8 billion and furthermore the group’s recent financial year 2016 ( FY16) posted a commendable earnings of RM22.7 million.

Additionally, the research arm previously reasoned that the management has shown their met t le in turningaround the company.

Hence, the research arm was not surprised that year to date ( YTD) - the share price has surged 37.02 per cent.

Despite rising share price, MIDF Research was adamant in maintaining its earnings forecasts for financial year ended 2017 ( FYE17)/ FYE18.

“At wr it ing, Gabungan AQRS’s price earnings ratio ( PER) is 21.79- fold which we reckon has run- up sharply above our conservat ive estimate for small- midcap construction companies of 12- fold PER,” it said.

MIDF Research will shift its view in two scenarios, when orderbook replenishment rate exceeds target of RM600 million by 20 per cent or RM720 million for FYE17 and when there is adjustment to the research arm’s discounted cash f low ( DCF) valuation by increasing its risk- adjusted cash flow forecast from 40 per cent to 55 per cent.

The research arm explained that this is to comfort any ‘ hard landings’ of revenue recognition gaps between the second quarter of FYE17 ( 2QFYE17) and 4QFYE17, resulting in earnings’ blips.

MIDF Research was also mindful of packages under the recent ly announced al ignment of East Coast Railway Link where one of the Kuantan stations is located in Kota SAS.

The research arm noted that Dato’ Azizan Jaafar, chief executive off icer (CEO) of Gabungan AQRS owns direct stake of 10.8 per cent in Tanah Makmur KotaSAS Sdn Bhd ( KotaSAS).

“Consequently, Gabungan AQRS potent ial ly stands to benef it from future development in KotaSAS especial ly transitoriented development projects,” MIDF Research said.

The research arm added that packages of pre- casts segment for Sabah Pan Borneo is expected to lend further support to Gabungan AQRS in FYE18 due to its subsidiary of SEDCO Precast Sdn Bhd, which is a 49 per cent joint venture (JV) with Sabah D ev e l o pme n t Corporation.

The research arm estimated RM400 million worth of orders within the construct ion period.

However, MIDF Research h a s down g r a d e d it s recommendation to ‘ neutral’ with a target price of RM1.24 per share.