• Towards sustainable growth. AWC is mainly divided into three main business segments, namely facilities management, engineering services and envi ronmental division. In FY16, these divisions contributed about 39%, 31% and 30%, respectively to the group’s revenue. Historically, about 70% of its revenue is derived from local operations, Singapore (25%) and the rest from Middle East counties (5%).

• Strong earnings visibility, undemanding valuation and decent DY. AWC is trading at 9.2x FY18 P/E, which is 19% below its average 10-year low P/E of 11.3x as well as supported by decent yields of 4.5-5.1% for FY17-18. We believe such valuations have priced in most of the negatives and provided sufficient margin of safety to cushion further sharp share price decline.

• AWC’s total outstandi ng orderbook stood at ~RM1.2bn, which will provi de earnings visibility for the next nine years. To recap, core earnings had been growing at 12% 10-year CAGR from FY07 to FY16. Consensus is expecting FY16-18 earnings to improve by another 14% to RM22.5m in FY16-18, driven by a mix of stable and recurring-concession income, leveraging on the synergy and track record between its facilities management, engineering and environment divisions.

• Poised for a triangle breakout. AWC prices are currently gyrating within the major triangle formation. Both MACD and RSI readings are largely neutral while slow stochastic indicator is steeply oversold. We see limited sharp fall and once this pattern ends, we expect prices to breakout to the upside.

• Immediate resistances are RM0.81 (mid Bollinger band). A decisive break above RM0.81 will lift prices higher towards RM0.835 (downtrend line) and RM087 (76.4% FR) before advancing further towards our LT objective at RM0.91 (52-week high). On the flip side, key supports are RM0.77 (23.6% FR) and RM0.75 (uptrend line). Cut loss below RM0.735.

Source: Hong Leong Investment Bank Research - 4 Oct 2016