AWC Bhd
(Aug 24, 85 sen)
Maintain add with an unchanged target price (TP) of RM1.19: The fourth quarter ended June 30, 2016 (4QFY16) net profit of RM6.5 million (+12% quarter-on-quarter [q-o-q]) brought full-year net profit to RM17.2 million, 15% ahead of our estimate. All divisions delivered stellar performances. FY16 revenue came in 13% ahead of our forecast. The star performers were the STREAM Automated Waste Collection Systems, and facilities. Revenue was quite evenly split in 3QFY16 between facilities (45%), engineering (33%) and environment (30%). At the pre-tax profit level, environment contributed 56%, followed by facilities and engineering (22% each). 

STREAM and facilities divisions saw pre-tax profit more than doubling on a year-on-year (y-o-y) basis. Facilities benefited from the commencement of the Shah Alam hospital in 4QFY16, as well as the start of new concession rates. STREAM’s revenues doubled y-o-y as progress billing accelerated in Malaysia, Singapore and the Middle East. 

AWC declared a one sen final dividend in 4QFY16, bringing full-year dividend per share (DPS) to 2.5 sen, which is above our 2 sen estimate. We raise our DPS estimates by 0.5 sen per share in FY17 and FY18. The stock now yields 4.1% to 4.7% from FY17 to FY18. AWC’s net cash position stood at 18 sen as at end-June 16, with little to no borrowings. 

AWC has an estimated outstanding order book of about RM500 million up till FY18.

We believe that contract wins in STREAM and the plumbing division, given their high margins, could be rerating catalysts, as they would sustain earnings visibility in FY17 to FY18. Given the slew of high-rise office buildings coming up in the Klang Valley, we believe that private sector facilities maintenance contracts are also in the pipeline. 

We maintain our “add” rating with an unchanged sum-of-parts-based target price of RM1.19, after tweaking our forecasts for housekeeping. The stock is attractively valued at 10.4 times FY17F (forecast) price-earnings ratio (PER) and FY17F ex-cash PER of 7.7 times. Key risks to the achievement of our TP include project execution and delays. Potential rerating catalysts are more contract wins and special dividends. — CIMB Research, Aug 23