We downgrade AQRS to HOLD from Buy given the limited upside to our reduced TP of RM2.14. The share price reached an all-time high of RM2.16 on 8 January 2018. Mr Bernard Lim, CFO of AQRS who played an instrumental role in its listing in 2012, has left the company to pursue his other business interests. Mdm Ow Yin Yee, the Financial Controller, was promoted as CFO to replace him. The delay in negotiations with Tera Capital to jointly develop One Jesselton leads us to cut our EPS forecasts by 6-13% over FY17E-19E.

New CFO

Bernard sold his 11.5% stake in Ganjaran Gembira Sdn Bhd, which holds an 11.8% stake in AQRS, to Dato’ Azizan but he retains a 2.1% direct stake in the company. He left to pursue other business interests. Following the sale, Dato’ Azizan owns a 97% stake in Ganjaran Gembira. Mr Paul Ow, COO of AQRS, disposed of his stake in Ganjaran Gembira on 21 August 2017 to Dato’ Azizan. Paul retains a 7.4% direct stake in the company. Mdm Ow is Paul’s sister and has taken over as the new CFO.

Extension of MOU for One Jesselton

AQRS and Tera Capital Ltd have mutually agreed to further extend the expiry date of the Memorandum of Understanding (MOU) signed to jointly develop the One Jesselton Waterfront mixed development project in Kota Kinabalu to 31 May 2018 from 17 January 2018 previously. This could lead to a delay in the implementation of the project. We cut our earnings forecasts by 6-13% in FY17-19E. Assuming the project kicks off in 4Q18, we estimate the One Jesselton project will contribute 4%/9% of EBIT in FY18/19E.

Large Order Book to Support Earnings

The outstanding order book of RM2.6bn is equivalent to 11.8x FY16 construction revenue, providing good earnings visibility. Prospects to grow the order book is good as AQRS plans to tender for the Pan Borneo Highway Sabah and East Coast Rail Link projects.

Downgrade to HOLD

We trim our RNAV/share estimate to RM2.38 from RM2.40 to reflect the lower DCF valuation for the One Jesselton project, partly offset by the lower net debt with the delay in capex for the project. Based on the same 10% discount to RNAV, we cut our TP to RM2.14 from RM2.16. The strong outperformance of the share price has narrowed the potential upside to 6%, prompting us to downgrade our call to HOLD from Buy.

Source: Affin Hwang Research - 17 Jan 2018