• Maintain BUY (TP: RM0.49). Gabungan AQRS (AQRS) reported a 15M24 Core PATAMI of RM32.1mn, which excluded the recognition of Liquidated Ascertained Damages (LADs), accounting for 73.6% of our estimate, thus falling below our expectations. The earnings being dragged mainly due to increase in operating expenses which recorded an increase of 7% QoQ. Nevertheless, we remain positive with its long-term outlook, given the company's strong position to win rail sub-con jobs and a consistent stream of public sector projects. We maintain our BUY call for AQRS, with TP of RM0.49 pegged at 9.1x PER to CY24F EPS of 5.4sen.

• Key highlights. In 5QFY23, there was a slight dip in revenue (-6.4% QoQ), totalling RM67.0mn compared to RM71.5mn in the preceding quarter. This was followed by a reduction in net profit (-1.5% QoQ), amounting to RM3.2mn. The decrease was primarily attributed to additional costs incurred for a construction project. Meanwhile, net gearing rose to 0.30x from 0.28x in 4QFY23, with 48% of its short-term bank borrowings currently tied to project financing. These borrowings are secured against project cash flows, and we anticipate that gearing will decrease in the upcoming quarter as the project progresses.

• Earnings Revision. No changes.

• Outlook. We remain sanguine on the company’s earnings growth as we anticipate net profit to improve, pending the finalisation of the financing structure expected to be resolved in 2HCY24. Looking ahead, AQRS plans to expand its property portfolio, which is expected to contribute to earnings sustainability for FY24-28. Additionally, the company aims to enhance financial liquidity by monetizing its unsold completed units valued at RM9.9mn. We anticipate that this strategy will strengthen AQRS's cash flow, supported by its robust outstanding orderbook of RM468.0mn, along with property unbilled sales of RM236.7mn. These sales are expected to be gradually recognized until 2H2024, further aiding in the company's recovery. Moreover, we also anticipate the launch of the affordable housing project, Gambang Residensi, with a Gross Development Value (GDV) of RM382mn, slated at year-end.

Source: BIMB Securities Research - 30 May 2024