This article first appeared in The Edge Financial Daily on July 15, 2019
Gabungan AQRS Bhd
(July 12, RM1.41)
Maintain buy with a higher target price (TP) of RM1.88: We gather that Gabungan AQRS Bhd is looking to tie up with a large bumiputera contractor to bid for East Coast Rail Link (ECRL) subcontract works. Finding a bumiputera partner with a large balance sheet will allow the joint venture to bid for a multibillion-ringgit subcontract under the bumiputera category, which is less competitive due to preferential treatment and fewer bidders. AQRS’ cost advantage is its established construction operation in Kota Sultan Ahmad Shah in Kuantan — which will have an ECRL station — and its access to quarry stone supplies in Pahang.
AQRS launched the E’Island Residence affordable condominium in Puchong, Selangor, and relaunched The Peak condominium in Johor Bahru in the second quarter of 2019. AQRS achieved bookings of RM75 million in the first half of 2019, mostly for its E’Island project. Take-up rate remains low due to weak property market conditions. Bank borrowings to finance both projects are low and hence AQRS can weather the weak demand and offer a rent-to-own scheme for The Peak.
AQRS has good prospects to grow its remaining order book of RM1.96 billion, equivalent to 3.6 times its financial year 2018 (FY18) construction revenue. We assume it will secure RM1.5 billion worth of new contracts in FY19 and RM1 billion per annum in FY20-FY21. But we cut our core earnings per share estimates by 3%-5% for FY19 to FY21 to reflect slower new contract awards and dilutive impact from the exercise of warrants. — Affin Hwang Capital, July 12