INVESTMENT HIGHLIGHTS

• Achieved a landmark award for LRT3 Package GS04

• Orderbook swelled to RM2.13bn

• Revenue and earnings estimates for FYE18/FYE19 increased

• Altogether, we upgrade our TP to RM2.08 per share

Achieved another landmark award. AQRS’s wholly owned subsidiary Gabungan Strategik Sdn. Bhd. has received letter of award from Prasarana Malaysia Berhad with MRCB George Kent Sdn. Bhd. for the construction of Package GS04 Temasya to Stadium amounting to RM1.13bn (ex GST).

Orderbook swelled to RM2.13bn. The scope of the estimated 4-km project includes construction of elevated guideways, 3 elevated stations inclusive of park and ride facilities for duration of 38-months. The elevated viaducts are reinforced concrete structures comprising substructure (pile/pile caps) and superstructure (girder-box), while the elevated stations include concourses and platforms. We asses that the AQRS’s cost per k/m of c.RM226m is more cost-efficient to manage project margins compared to Sunway Construction’s cost per km of RM236.9m.

Forging stronger track record. The project is a landmark award as the sheer scale of the project amounts to +97.4% increased from its previous unbilled orderbook of RM1.67bn. As a result, the current orderbook swelled to RM2.81bn. We view this as a positive sign indicating the competitiveness of pricing and efficiency of AQRS as a contractor. This award lifts AQRS’s track record as a main contractor for rail transport infrastructure. In future, the experience of managing the awarded project would be useful to tender for other rail-related projects or packages especially ECRL and KL Singapore High-Speed Railway (HSR).

Revenue and earnings estimates for FYE18/FYE19. Revenue forecasts for FYE18/FYE19 is adjusted higher by +37.8% and +28% respectively. That’s said, backed by an estimated margin of 8.5% we upgrade the FYE18/FYE19 earnings estimates by +8%/+12% in tandem with the project timeline. We maintain certainty equivalent of 45% for the package as we believe that risks emanating from cost overrun and construction program delays are mitigated with the location of the package which requires less mobilization period due to; (i) proximity of Shah Alam-Glenmarie and (ii) minor relocation of utilities line.

Recommendation. As a result of our earnings upgrade, we adjust our TP to RM2.08 implying +17.0% upside per share based on DCF valuation and changes to our earnings forecast and terminal value. (WACC of 6.2%, risk adjusted cash flow assumptions at 45% and 10-year cash flow forecasts).

Source: MIDF Research - 6 Oct 2017