INVESTMENT HIGHLIGHTS

• 9MFY17 earnings meets expectation

• Earnings buoyed by construction progress billings

• Maintain earnings estimates

• Altogether, we maintain our BUY recommendation with a TP of RM2.08 per share

9MFY17 earnings meet expectation. AQRS’s 9MFY17 earnings of RM32.8m (+117%YoY) meet expectation at 70.0% of our full year estimates and beating Street’s expectation by registering 90.0% of the estimate. The strong results are influenced by higher progress billings from Sg. Besi-Ulu Kelang (SUKE), PPSAS and PR1MA Kuantan. Moreover, AQRS‘s orderbook of RM1.14bn is backed by economies of scale achieved through the large concentration of its project team in Pahang. Its revenue illustrates revenue improvement from RM243.9m in 9MFY16 to RM319.2m in 9MFY17 (+31%YoY) backed by construction segment revenue of RM211.5m in (+42%YoY) which contributed 66.2% of total revenue.

Earnings buoyed by construction progress billings. For 9MFY17, construction segment contributed to 88.9% of PBT, as a result of its revenue being lifted from RM145.5m in 9MFY16 to RM211.5m (+45%YoY) in 9MFY17. Moving forward, we reckon that AQRS will be able to support its construction revenue growth through LRT3, Pan Borneo and One Jesselton projects and subcontract package. Earnings will be positively accretive as the revenue growth will be coupled with assertive cost engineering as stated in AQRS’s transformation plan.

Maintain earnings estimates. We make no changes to our forecast for FYE18/FYE19 on the back of sturdy orderbook of RM1.14bn.

Recommendation. Maintain our BUY recommendation with a TP of RM2.08 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 - 24 Nov 2017