• Core net profit of RM15.9m (-50% yoy) in 2020 was above market and our expectations. Core earnings jumped 146% qoq in 4Q20, driven by higher property development earnings
• High unbilled property sales of RM244.5m and remaining construction order book of RM1.4bn should support strong earnings growth in 2021-23E
• We lift core EPS by 1-6% in 2021-22E to reflect higher new contract wins. We upgrade our call to BUY from Hold but with a reduced 12-month target price (TP) of RM0.74, based on a 20% discount to RNAV

Progress Billings Accelerated

Gabungan AQRS reported core net profit of RM15.9m (-50% yoy) in 2020 compared to consensus net loss forecast of RM0.2m and our net profit estimate of RM11.3m. But the provisions/impairments and negative revenue adjustment in 2Q20 led to a large headline? net loss of RM56.5m in 2020. We believe the worst is over for the group and expect strong earnings growth in 2021E, driven by rising progress billings for its construction and property development arms as pandemic lockdowns ease.

Rising Property Sales and New Contract Wins

AQRS achieved property sales of RM304.3m in 2020, mainly driven by rising sales for E’Island Lake Haven and enbloc sales for The Peak. In addition, RM92.3m of bookings are in the process of being converted into sales. Average take-up rate was 32% for its portfolio of property development projects. No new external contracts were added in 2020 but AQRS secured RM85m new contracts, ie, private building jobs, in YTD2021. Good prospects for AQRS to win new contracts in 2021 with ongoing tenders for more private building jobs while waiting for the roll out of infrastructure jobs such as Pan Borneo Highway Sabah and East Coast Rail Link. It is targeting RM400m new contract wins in 2021.

Upgrade Our Call to BUY

We believe AQRS will see strong earnings growth in 2021 with the expected completion of major projects such as KotaSAS administration centre and SUKE expressway this year. Property sales are picking up, especially for its E’Island project. 2021E core PER is attractive, considering strong core EPS CAGR of 61% in 2021-23E. We upgrade our call to BUY with a TP of RM0.74, based on a 20% discount to RNAV (reduced for higher net debt at end-2020). Key downside risks are slow property sales, new contract wins and progress billings for ongoing projects.

Source: Affin Hwang Research - 1 Mar 2021