INVESTMENT HIGHLIGHTS

• 12MFY17 earnings above expectation

• Earnings influenced by construction progress billings

• Maintain earnings estimates

• Altogether, we maintain our BUY recommendation with a TP of RM2.30 per share

12MFY17 earnings above expectation. AQRS’s 12MFY17 earnings of RM48.0m (+112%YoY) meet expectation at 102% of our full year estimates and beating Street’s expectation by registering 117% of the estimate. Its revenue improved from RM330.0m in 12MFY16 to RM469.2m in 12MFY17 (+42%YoY).

Earnings buoyed by construction progress billings. For 12MFY17, construction segment contributed to 77.0% of revenue, as a result of its higher construction activities. Moving forward, we reckon the crystallization of projects such as LRT3, Pan Borneo and One Jesselton projects will increase earnings in 1QFYE18.

Maintain earnings estimates. We make no changes to our forecast for FYE18/FYE19 on the back of sturdy orderbook of RM2.77bn. We reckon that once the One Jesselton in Kota Kinabalu project commences the PATAMI margin of 10.2% will be expanded to c.11.0% as a result of economies of scale. The start of East Coast Railway Line is also positive for AQRS as it will potentially bring flurry of civil and infrastructure packages.

Recommendation. Maintain our BUY recommendation with a TP of RM2.30 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 - 9 Feb 2018