Gabungan AQRS organized post-results briefing yesterday and we remain positive on its outlook despite 1HFY20 earnings missing our expectations.

• Negative revenue well explained. AQRS posted headline revenue of - RM53.3m in 2QFY20 which surprised the street. Management explained that it had to undertake various cleaning up, which contributed to the negative revenue. Delving further, AQRS incurred an amount of RM44.4m related to construction project budget revision. The revision, involved one particular client’s variation order (VO), thus causing reversal of revenue for construction segment. In addition, the company incurred a RM17m charge for property segment as MFRS 15 treatment for Liquidated Ascertained Damages (LAD) involves reduction of GDV or contract sum, instead of additional cost to incur. Excluding these items, AQRS core revenue would have been at RM8.2m for 2QFY20.
• Property sales picking up. AQRS’s unbilled sales stand at RM157.7m spread between 3 projects, and majority of the sales were generated since March until Aug 2020 with sales of RM112.7m. Management attributed this partly due to the various efforts announced by government to boost property sector during Covid-19 outbreak. Nevertheless, property segment was hit during 2QFY20 caused by the repricing of its completed inventories – Contours Melawati Heights and Permas Centro.
• Construction orderbook healthy despite turbulent times. YTD, AQRS only managed to secure RM37m work of ECRL-related job. In view of challenging times ahead, AQRS will only tender for value-add jobs and will focus the projects in hands worth RM1.3bn, which would enable it to weather though the turbulent economic recession period.
• On track for 40% cost reduction. In view of turbulent times ahead, AQRS is committed to reduce its operating expenses by 40%. So far, AQRS is on track to achieve the target. YTD, AQRS operating expenses have declined by 69% yoy.
• 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 - 2 Sept 2020