GABUNGAN AQRS BHD

By UOB Kay Hian Malaysia Research Rating: Buy (maintained) Target price: RM1.80

UOB Kay Hian Malaysia Research has cut its 2019 net profit forecast by 16% as its expects billings recognition from Gabungan AQRS’S 2019 order book replenishment of Rm1bil would only be recognised from early 2020.

The property billings recognition assumptions were also revised due to the opinion that the accelerated billings recognition of Gabungan AQRS’S unbilled sales will be in full swing from 2020.

The property sales assumption for 2019 was left unchanged at Rm220mil. Similarly, the 2020-21 net profit forecasts were also unchanged. According to UOB Kay Hian Malaysia Research, external factors such as delays in LRT3 progress billings, sluggish property sales and later-than-expected potential job wins (ECRL and Pan Borneo Highway Sabah) were the reasons behind the downward revision of 2019 earnings.

“Despite the headwinds, Gabungan AQRS is expected to deliver decent results versus peers. However, prospects remain promising as Gabungan AQRS is highly seen as the frontrunner to clinch ECRL and Pan Borneo Highway Sabah contracts.

“We understand ECRL contract flows could intensify in mid-4q19 following the positive leads relating to ECRL development.

“As the frontrunner of the ECRL project, we expect Gabungan AQRS to secure the ECRL contract for the Kuantan-gambang which it has tendered for below Rm2bil. Separately, Gabungan AQRS and its joint venture (JV) partner, Suria Capital Holdings Bhd (stateowned listed company) are expecting to secure Pan Borneo Highway Sabah work contracts in early-2020. This JV has tendered for four packages worth Rm2bil,” it said.

The research firm added that it expects Gabungan AQRS will likely maintain its construction margins, should it secure work contracts from the rollout of mega projects as its operating costs are much leaner than peers. As at end-jun 19, the company’ outstanding construction order book backlog stood at Rm1.8bil. “We expect earnings to pick up gradually in 2H19, underpinned by accelerated billings from LRT3 which are expected to be in full swing from 2H19, coupled with other key projects like the Sungai Besi - Ulu Kelang Elevated Expressway,” it said.

On Gabungan AQRS’ property business, UOB Kay Hian Malaysia Research said that it will see earnings growth in 2020.