• Overview. AQRS’s 3Q20 revenue and core earnings fell to RM84.3m (- 28.9% yoy) and RM5m (-56.1 yoy) respectively. This brings 9M20 core earnings to RM3.9m (-8.1% yoy). On qoq basis, revenue turned around to positive vs. negative revenue of RM53.3m in 2Q20, while earnings recovered from loss of -RM4.9m,

• Key highlights. AQRS only begun operating at full capacity during late 3Q20 and this hampered the contribution from construction segment.

• Against estimates: Below. AQRS’s 9MFY20 core earnings of RM3.9m missed our estimates at 19%, however it came in above consensus. The key setback was attributed to lower progress works as a result of MCO impact, which witnessed the closure of sites. We revised lower our FY20 and FY21 earnings forecast to RM11m (from RM21m in FY20) and RM39m (from RM56m in FY21) respectively.

• Outlook. Despite making positive progress on the property development segment witnessed by an incremental rise in booking, we turned cautious on the construction segment that have experienced various setbacks in view of the slowdown in key construction projects revival. Its property segment however is backed by unbilled sales of RM213m from The Peak and E’Island with expected cash flow generation of RM418.1m.

• Maintain BUY rating with lower TP RM1.00 (versus RM1.10 previously) based on SOP valuation, tagged to FY21 earnings. We believe there will be significant upside to our target price should AQRS is successful in clinching the ECRL’s contract or a slice of the MRT3 project.

Source: BIMB Securities Research - 27 Nov 2020