• Overview. Stripping out impairment on inventories (RM19.3m) and impairment on construction project (RM33.3m) on the back of standstill activity during MCO period, AQRS posted core net loss of - RM4.5m against profit of RM11.1 in 2Q19 and RM5.5m in 1QFY20. The impact of MCO had caused non-activity for the whole April but has slowly picked up in May and June respectively. This brought 6MFY20 core net loss to RM0.4m against profit of RM22.1m in 6M19.
• Key highlights. AQRS posted negative revenue during the quarter of RM53m. Adjusted for the Liquidated Ascertained Damages (LAD) (RM17m) and construction budget revision (RM44.5m), AQRS core revenue would have been at RM8.2m.
• Against estimates: Below. AQRS’s 6MFY20 core net loss of RM0.4m missed both our and consensus forecast. The deviation was mainly from the impact of non-activity in April period due to MCO and works only resumed at a slow pace in May.
• Outlook. Despite the earnings setback resulting from the impairment of inventories and construction budget revision, we believe such action are necessary for future benefits and we believe the repricing of completed inventories has generated strong interest that led to strong bookings so far. Nevertheless, AQRS’s solid orderbook of RM1.3bn will provide earnings visibility for the next 3 years and would only tender for the jobs that have added value. Given this we lower our earnings for FY20 by 33% but maintain our FY21 and FY22 earnings.
• Maintain our BUY rating with unchanged TP of RM1.10 based on SOP valuation, tagged to FY21 earnings. 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 - 1 Sept 2020