INVESTMENT HIGHLIGHTS

• AQRS’s Results in-line with expectations

• Construction segment supported total revenue

• Weakened by earnings blips and in-between project

• Reaffirm earnings assumption

• Maintain BUY at TP of RM2.30 per share

Results inline. Despite the share price’s sharp drop, AQRS’s 3MFY18 PATAMI came in-line with our expectation with earnings accounting for RM23.4m (+8.0%YoY) amounting to 23.5% of our estimates and 22.3% of Street’s. The results reflected the weaker revenue of RM127.4m (- 20.0%YoY) comparably deriving from the higher recognition of project but lower contribution from property segment.

Construction segment supported total revenue. Generally, the PATAMI was positive attributable to the revenue of; (i) construction segment of RM109.8m accounting for 86.1% of total revenue while (ii) property segment contributed to RM14.8m of revenue accounting for 11.6% of total revenue on the back of a improved margin of 12.9% (+2.8ppts). Management has indicated the commitment on cost efficiency hence next quarter we can expect a better marginal profile through better revenue-stream mix. AQRS has made an admirable progress on projects such as LRT3, Sg. Besi-Ulu Kelang Highway (SUKE), Pusat Pentadbiran Sultan Ahmad Shah (PPSAS).

Weakened by earnings blips and in-between project. The property segment has posted losses amounting to RM1.4m due to the higher recognition of 2 land sales in the previous quarter located in Selangor. We are expecting a pickup in higher revenue recognition as AQRS is launching it new E’Island Residence Development in Puchong. The project is slated to sell affordable apartments between the ranges of RM290,000 to RM380,000. E’Island would potentially contribute c.RM28m/RM43m/RM42m for FYE19/FYE20/FYE21 on the back of 8.0% PBT margin based on its GDV of RM491.0m.

Reaffirm earnings assumption. AQRS FYE18’s earnings trajectory remains intact supported by its strong orderbook and the management’s commitment to reduce gearing and increase the operating margin. So far, its outstanding orderbook remains at RM2.7bn with an expectation of clinching another RM1.5bn worth of projects from Kota SAS development and Pan Borneo Sabah packages.

Recommendation. We reiterate our BUY recommendation with a TP of RM2.30. Our assessment of the sector has shifted from Positive to Neutral following the shifts in government’s policy to review big-ticket projects. We surmised that construction stocks will be affected by negative sentiments pending announcements of project status

Source: MIDF Research - 15 May 2018