INVESTMENT HIGHLIGHTS

• 1QFY17 earnings above expectations

• Earnings impelled by property sales

• Reiterate positive earnings estimates

• Nonetheless, we maintain our BUY recommendation with a TP of RM1.49 per share

1QFY17 above expectations. AQRS’s 1QFY17 earnings of RM18.5m (+153% YoY) exceeded our expectation at 42% of full year estimates. The strong results are imbued by notable improvements in segmental pretax profit from property sales. Furthermore, AQRS has expanded its orderbook to RM1.7bn, thus the transfer of it billings to revenue in the upcoming quarter beckons, especially for Sg. Besi-Ulu Kelang Elevated Expressway (SUKE). Its revenue shows an improvement from RM79.6in 1QFY16 to RM158.9m in 1QFY17 (+21% YoY).

Earnings impelled by property sales. For this quarter, property segment contributed to 60.2% of total revenue and 62.3% of PBT making revenue leaped from RM29.9m to RM95.71m (+936%YoY) and PBT lifted from RM6.9m to RM16.65m (+141%YoY). The steep increase is due to sales of properties such as The Contours and Courtyard Villas. We reckon that construction segment’s PBT and revenue will catch up once the billings from Kota SAS, SUKE and Kota Kinabalu Waterfront picks up.

Reiterate positive earnings estimates. We make no changes to our forecast as we reasoned on the previous quarterly report (24.2.17) that that the management can recoup the differences of earnings’ blip. Now, we believe that management will be able to expand their orderbook to RM800m by 4QFY17. That’s why improvement in property segments are crucial to illustrate that units in inventory/ work-in-progress will not drag earnings and pile up in next quarter consequently thus registering healthy revenue, earnings and pristine balance sheet.

Recommendation. Maintain our BUY recommendation with a TP of RM1.49 per share based on DCF valuation (WACC of 6.2%, 40% risk adjusted cash flow assumptions and 10-year cash inflow forecasts).

Source: MIDF Research - 23 May 2017