• We like Gabungan AQRS (AQRS) for its track-record in delivering major infrastructure projects such as LRT3, MRT1 and SUKE.

• We believe the company is poised to be one of the beneficiaries of government pump priming measures such as MRT3 and HSR. This should underpin orderbook expansion and improve its property sales. Currently its total orderbook stands at c.RM1.2bn which will provide earnings visibility until FY25.

• The company may resume its dividend payment in FY23 after the planned full repayment of its LRT3 project financing. We project the company to pay DPS of 1sen for FY23-25F which implies 2.8% dividend yield.

• We resume our coverage on AQRS with a BUY recommendation and TP of RM0.49. Key catalyst for the stock price includes (i) successfully securing new infra project, (ii) property development expansion through new joint ventures, and (iii) resumption in dividend payment.

A Capable Small-cap Construction Company

We like AQRS as a small-cap construction company that is capable of delivering large infrastructure projects. Since its inception, it has been involved in projects with a total value of c.RM3bn that include LRT3, Klang Valley Mass Rapid Transit 1 (KVMRT1) and Sungai Besi Ulu Kelang Expressway (SUKE) highway. More importantly, the company employs a prudent tendering strategy and effective cost management ensuring the successful delivery of projects within budget.

Poised to Benefit from Government Pump-Priming

The company currently has a robust construction orderbook of RM1bn (including new contracts win of RM90.3mn in 1H23). This strength is further reinforced by its unbilled property sales of RM300.3mn which will be completed via its in-house construction arm. We foresee further upside to its orderbook from two sources, namely (i) the revival of major projects like MRT3, Sabah Pan Borneo Highway, and Kuala Lumpur-Singapore High-Speed Rail (HSR), and (ii) a joint development agreement with Prima Corporation for a 100-acre township in Gambang, Kuantan.

Beneficiary of Recovery in Johor Property Market

AQRS’ The Peak project, which was first launched in 2015 has experienced a low take-up rate of 40%. This has resulted in a slight drag on its earnings due to the recognition of Liquidated Ascertained Damages (LAD) amounted to RM3.9mn in 2Q23. We believe that the revival of major public transport projects in Johor will boost its sales, particularly from foreign buyers.

Re-Initiate with a BUY and TP of RM0.49

We re-initiate coverage on AQRS with a BUY recommendation and TP of RM0.49, based on AQRS’s FY24F EPS of 5.4sen, pegged to a PER of 9.1x based on its 3-year mean.

Source: BIMB Securities Research - 6 Oct 2023