• AQRS share price has suffered continuous sell-down the past 2 years due to uncertainties over the construction sector’s outlook. 
• AQRS is yet to secure sizeable contracts to replenish its orderbook since 2018, but could be a main beneficiary from revival of infrastructure projects currently mooted by the government.
• Going forward, the development from property division would contribute steadily on the back of the E’Island and One Jesselton Waterfront as both projects’ progress would be accelerated.
• We initiate AQRS with BUY recommendation and SOP derived TP of RM1.10.

Worst is behind

AQRS’s share price has suffered heavy selling the past 2 years, recently falling to a low of RM0.63, c.40% compared to its peak of RM2.09 in January 2018. This is due to a series of mega projects’ negative news which have dampened outlook to add to its orderbook. Nevertheless, we expect the current orderbook of RM1.6bn and anticipated property sales of RM1bn will be able to support AQRS earnings for the next 3 years.

Poised to benefit from pump priming

We believe once the pump priming activity kicks in, AQRS will be in upper position to rope in bigger infra works given its track record to deliver the similar works in the past. Since 2018, AQRS has yet to secure sizeable contracts to replenish its orderbook and only managed to add RM37m related to ECRL Package A works, as Malaysia’s construction works dried up. Nevertheless, in absence of new job (worst case), current orderbook of RM1.6bn will translate into strong net operating cashflow of RM600m for the next 3 years.

Property segment to keep its earnings growth momentum

However, we expect its property segment earnings growth will be able to cushion the weakness from construction earnings in view of several completion of its property works namely E’sland and Jesselton Waterfront. AQRS is anticipating property billings of up to RM1bn (driven from unbilled sales of RM162m and remaining unsold launched GDV RM840m) and will able to sustain the next 3 years.

Initiate with BUY, TP of RM RM1.10

We initiate AQRS with a BUY recommendation with SOP derived TP of RM1.10. We believe there will be significant upside to our target price should AQRS be successful in clinching the ECRL’s contract or a slice from MRT3 project

Source: BIMB Securities Research - 17 Aug 2020