Gabungan AQRS trades 19.56 million shares for PR1MA contractor

KUCHING: Property developer Gabungan AQRS Bhd (GAQRS) has entered into a conditional share sale agreement (SSA) with a group of private investors to exchange 19.56 million shares in the group in return for a 100 per cent stake in Monolight IBS Building System Sdn Bhd (Monolight IBS) – an appointed PR1MA contractor.

In a statement on Bursa Malaysia, the group said the rationale for the proposed acquisition was to allow themselves to gain full control of the Pahang PR1MA project awarded to Monolight IBS of which they have a 49 per cent stake in, and fully accrue the benefits of the project when the company becomes its wholly owned subsidiary.

It is understood that the 19.56 million shares to be traded are reflective of a RM26 million pricetag placed on the acquisition and was determined after taking into consideration the huge of upsides of Monolight IBS.

“The purchase consideration was arrived at on a willing-buyer willing-seller basis after taking into consideration the following: the construction contract value of the project under the master agreement of RM424.23 million, and the expected cash inflow of the project to be received,” guided GAQRS.

Additionally, the group also guided that a private placement between 19.48 million to 35.48 million ordinary shares would occur in conjunction with the SSA in order to further raise working capital.

In the minimum private placement scenario, the trade-off for Monolight IBS would equal to a 5.01 per cent stake in GAQRS while the maximum scenario would equal to a 3.55 per cent stake instead.

According to a corporate update published by the Midf Amanah Investment Bank (Midf Research), the group of investors was led by Tan Sri David Kong of Nirvana group and that the entrance of new shareholders signals the street’s interest and confidence on the group’s potential upside.

“The new shareholders’ unique entrance is positive to GAQRS’s bottom-line and consequently it is inevitable for us to upgrade our earnings as Monolight IBS’s project under the PR1MA project will be fully recognised on the back of a 12 per cent profit margin for the duration of 36 months.

“And on the other hand, the placement intends to increase its financial agility to undertake larger projects while ushering in strategic cornerstone investors. We view that the news goes handin-hand with GAQRS’s growth narrative,” added the research arm.

With that being said, the research arm has decided to up the ante on GAQRS by add RM8.8 million or 23.03 per cent to their forecasted earnings and RM72.1 million or 16.3 per cent revenue estimates for FYE17-19.

“Apart from that, we changed our risk assessment; expressed in our discounted cash flow valuation (DCF) as 45 per cent certainty equivalent in the expected cash flow project,” said the research arm who explained that they found PR1MA project to have lower risk profiles due to its subsidisation by the Government.

To reflect these earnings and risk adjustments, the research arm has decided to maintain its ‘Buy’ stance on the group with a higher target price of RM1.62 from RM1.49 to imply a 15.7 per cent upside per share.