Gabungan AQRS reported 1H18 result that was above our expectation but within the street’s expectation. Net profit jumped 52% yoy to RM35.6m in 1H18 driven by higher construction earnings despite the absence of land sale gains. We lift our EPS forecasts by 7-14% in FY18- 20E to reflect higher construction PBT margins. High order book of RM2.5bn will sustain earnings growth ahead. We reiterate our BUY call with lifted RM1.60 TP, based on 30% discount to RNAV.

Above Expectation

AQRS reported net profit of RM35.6m in 1H18 comprises 50% of consensus full-year forecast of RM71.4m and 64% of previous estimate of RM55.4m. Revenue jumped 32% yoy to RM314.7m on higher construction (+42% yoy) and property development (+70% yoy) revenue. PBT increased 36% yoy to RM48.7m in 1H18, mainly driven by higher construction PBT (+66% yoy) and interest income while its property division incurred a small loss. Net profit was up 52% yoy with lower effective tax rate. Excluding the one-off land sale gains in 1H17, core net profit jumped 249% yoy to RM35.3m.

Sustained by High Order Book

AQRS’ high remaining order book of RM2.5bn comprising the SUKE, KotaSAS and LRT Line 3 projects will sustain construction earnings growth. AQRS targets to secure another RM1.5bn worth of new contracts. Poor sales for The Peak development (30% sold) continues to drag down property earnings. Unbilled sales of RM128m and unsold property units valued at RM486m will contribute to property earnings in FY19-22. AQRS also plans to launch its E’Island Residence affordably-priced apartments (1,104 units) with total gross development value of RM491m in 2H18.

Raise Earnings

We upgrade EPS by 7-14% in FY18-20E to reflect better construction PBT margins. Construction PBT margin was high at 16.7% in 1H18 as its projects move to more advance stage of construction. Assuming a higher sustainable construction earnings of RM70m (RM60m previously), we lift our fully-diluted RNAV/share estimate to RM2.30 from RM2.10.

Upgrade to BUY

We reiterate our BUY call on AQRS with TP raised to RM1.60 from RM1.48, based on the same 30% discount on the lifted RNAV/share. Key risk is slower order book replenishment and execution.

Source: Affin Hwang Research - 13 Jul 2018