• Gabungan AQRS is a potential beneficiary of the revival of the Pan Borneo Highway (PBH) Sabah project as it has submitted tenders previously for 4 packages together with its joint-venture (JV) partner Suria Capital
• 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 5% in 2021-22E to reflect higher progress billings and better profit margin for ongoing projects. We reiterate our BUY call with a higher RM0.81 target price, based on 20% discount to RNAV

Good Prospects to Secure PBH Sabah Packages

AQRS-Suria Capital JV submitted tenders for PBH Sabah packages in 2017. But the roll-out of new packages for PBH Sabah was delayed due to the previous changes in government. We expect the implementation of the project to accelerate with the appointment of HSS Engineers as the Project Management Consultant (PMC) for PBH Sabah Phase 1 on 22 April 2021. We gather that potential new contract wins is RM0.5-1.0bn from this project if AQRS secures several packages for the PBH Sabah project. In addition, AQRS is targeting new contract wins of RM400m from other projects to lift its current order book of RM1.4bn.

Share Overhang Cleared

AQRS has secured RM85m of new contracts in YTD2021 for 2 building jobs from Rembawang Holdings Sdn Bhd (RHSB). Incidentally, AQRS has successfully issued 49.3m new shares, equivalent to a 9.1% effective stake, to Dato’ Kamisah binti Johan at an issue price of RM0.61/share via a private placement, reducing net gearing to 0.24x from 0.31x at end-2020. She is the major shareholder in RHSB, a niche property development/investment company with several projects in Kuala Lumpur and Seremban. We understand that the new strategic shareholder could provide opportunities for AQRS to secure more external property and construction projects.

Maintain Our BUY Call With Higher RM0.81 Target Price

We lift core EPS by 5% in 2021-22E to reflect higher progress billings for its ongoing construction projects and improved blended profit margin for the group. The positive earnings impact is partly offset by the dilutive impact of about 7% from the private placement of new shares. We lift our RNAV/share to RM1.01 from RM0.92 to reflect higher sustainable construction earnings of RM25m from RM20m previously. Based on the same 20% discount to RNAV, we raise our TP to RM0.81 from RM0.74. BUY.

Source: Affin Hwang Research - 11 May 2021