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This article first appeared in The Edge Financial Daily on June 21, 2018

AWC Bhd
(June 20, 63 sen)
Maintain add with a target price of RM1.00:
We gather that AWC Bhd expects its integrated facilities management (IFM) segment to continue to perform strongly, given better economies of scale, increase in order book, and higher recognition from its Critical Asset Refurbishment Programme (CARP). CARP is a 10-year programme (January 2016 to December 2025) for the replacement of old mechanical and electrical equipment at government buildings at a pre-agreed schedule. The government pays AWC on a monthly basis but AWC will only recognise the payment as earnings when work is done.

 

Moving forward, AWC plans to secure more private jobs in the IFM segment, especially in the healthcare and commercial segments. AWC believes its experience and strong track record will make it very competitive in securing more private IFM jobs. Also, margins for private IFM contracts are also generally higher versus concession projects. For the IFM segment, we estimate that 55% of its existing total order book, including the CARP concession (up to December 2025), is for government facilities.

In the environment segment, delays in progress billings led to a weak performance. As AWC’s STREAM automated waste collection systems were installed towards the end of a construction project, unforeseen delays by the project’s main contractors resulted in slower progress billings. Also, emergence of new players in this segment in Singapore led to a more competitive environment there. However, AWC remains confident that the superior quality of its products will set it apart from its peers.

AWC recently announced it had extended its target completion date for the acquisition of a 60% stake in Trackworks by three months to Sept 26. This was in relation to a demand letter for RM19 million in damages served by a customer to Trackworks’ vendors and international principal. According to AWC, any potential liability from this demand letter would likely be borne solely by the aforementioned principal. In our view, AWC is likely to complete this acquisition given its plans to venture into the rail business.

As there were no surprises from our meeting, we make no changes to our earnings estimates. We also retain our “add” call, and a TP of RM1.00, based on 11.2 times calendary year 2019 (CY19) price-earnings ratio (PER) forecast, a small-cap and liquidity discount of 10% to its larger peer UEM Edgenta’s 12.4 times. We continue to like AWC for its defensive earnings and undemanding valuation of 7.3 times CY19 PER forcast. — CGSCIMB Research, June 19

 

 

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