INVESTMENT MERIT

- Analysts briefing highlights. We attended Gabungan AQRS “GBGAQRS” analysts briefing recently and came back with a more positive view on the stock despite the company posting a weaker set of FY12 results. The group recorded a lower net profit of RM21.6m (-55.2% YoY) in FY12 mainly due to: 1) the delay in its property project in Klang Valley, 2) a lower EBITDA margin (12.1% vs. 20.2% a year ago) as a result of lower construction jobs margins, 3) higher financing costs and 4) RM4.4m in listing expenses from its IPO exercise.

- A small and niche developer. GBGAQRS is a relatively small-scale developer as the group only develops small pockets of strategically located lands. The group’s on-going property project has a total GDV of RM953.4m, which provide earnings visibility up till FY15. We like the strategy taken by the group as this will not burden or stretch its balance sheet. GBGAQRS currently is in a net cash position of RM26m (RN0.07/share) as of 4Q12, which will allow the group to further enhance its land bank if the oppotunities arise.

- Construction order book remains healthy. GBGAQRS’s outstanding external construction order book currently stands at c.RM550m, which include the RM303m MRT-Package V1 project (Sg. Buloh to Kota Damansara Station) and RM141m upgrading roadworks at Jalan Rantau to Sungai Gadut, Negeri Sembilan. This would provide it earnings visibility for the next three years.

- Moving forward, we are of the view that the group could potentially make a strong comeback given that its recent land issue in Klang Valley has been resolved. We are projecting a strong 70% YoY growth in its revenue, underpinned by the faster recognition of its construction order book and property sales (mainly in Klang Valley). Besides, management is also confident of securing more jobs from the government due to its vast experience in infrastructure works. However, we believe that construction projects flows will only come in after the General Elections.

- Trading Buy. The group’s share price has fallen by 18% since its IPO in July-12 to RM0.96 and is currently trading at 6.6x FY13 PER. The PER is at around a 15% discount to the average small-to-mid size construction players PER of 7.8x. Assuming a conservative FY13 PER of 7.5x, the stock could be valued at RM1.10. Meanwhile, the group has set a formal dividend policy of a 25% payout, which translates into an attractive dividend of 3.8% (DPS: 3.7 sen). TRADING BUY.

TECHNICALS

- Resistance: RM1.02 (R1), RM1.19 (R2)

- Support: RM0.93 (S1), RM0.90 (S2)

- Comments: GBGAQRS's technical picture has turned negative following the violation of the RM1.02 support level. Nevertheless, some sollace can be taken from the RSI, which is deep within oversold regions and we would not rule out a technical rebound from here.

BUSINESS OVERVIEW

Gabungan AQRS is a civil and building contractor that specialises in IBS technology as well as aso a property developer. It has CIDB Grade-G7 and PKK Class-A licenses that allows it to tender for for government projects of any values. Over the years, the group has successfully completed numerous projects for the government like the LDP extension (RM277m), the Seremban–Senawang federal road (RM110m), 43 school blocks in Selangor & KL (RM150m), Institut Kemahiran Belia Negara (RM90m) and others.

BUSINESS SEGMENTS

- Construction. Its construction arm, which mainly focuses on building construction and civil construction, is the core contributor to the group’s earnings, contributing 84% of the FY12 revenue.

- Property Development. The group ventured into property development in 2004 through its maiden project namely The Residency with a GDV of RM93m. To date, the group has a total confirmed GDV sales of RM953.4m for its property development projects i.e. Gombak Grove @ Setapak, Contours, The Avenue @ Kinrara and The Peak @ Johor Bahru.

Source: Kenanga