INVESTMENT HIGHLIGHTS

• 9MFY18 results within expectation

• Construction division extended support in 3QFY18

• Property segment likely to pick up soon

• Lean cost-structure remained a focus

• Maintain BUY with TP of RM1.87

Results inline. AQRS’s 9MFY18 PATAMI came in-line with our expectation with earnings accounting for RM52.6m (+60.0%YoY) amounting to 75.5% of our estimates and 73.2% of Street’s. The results reflected the stronger revenue of RM483.6m (+124.0%YoY) due to better construction contribution (+124.0%YoY). However, its cumulative figure was weighed down by property segment, which posted - 61.8%YoY decline.

Total revenue supported by construction division. The group’s PATAMI continued to be robust, backed by construction orderbook. In 3QFY18, it grew by +>100.0%, attributable to better progress billings for the Sungai Besi-Ulu Kelang (SUKE) Highway and Pusat Pentadbiran Sultan Ahmad Shah (PPSAS) projects. This led to better profitability in the quarter, recording +19.5%YoY increase to the tune of RM25.7m.

Property segment expected to pick up soon. In the quarter, property’s contribution was minimal, reporting only RM4.4m in revenue. As a result, it extended losses amounting to -RM6.0m in 9MFY18. In light of the upcoming launch of new E’Island Residence Development in Puchong, we are expecting a pickup in revenue recognition. With GDV value of RM491.0m, 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.

Lean-cost structure remained a focus. Management reiterate its emphasis to ensure that fundamentals of the business operations continue to be managed effectively. This was done to safeguard margins, while keeping its long-term operations stable and healthy. Moving forward, we could expect better marginal profile through better revenue-stream mix.

Reaffirm earnings assumption. Our earnings forecast remains intact supported by its strong orderbook and brighter prospect in the property segment. As of 3QFY18, its outstanding orderbook stood at RM2.4b, providing earnings visibility for the next three years.

Recommendation. Given its robust orderbook, we maintain our BUY recommendation with a TP of RM1.87 per share by rolling over FYE19 EPS with 11x PER on the stock reflecting our defensive posture on the sector. Notably, our stance on the sector has shifted from POSITIVE to NEUTRAL due to the change in government’s policy to review infrastructure spending.

Source: MIDF Research - 19 Oct 2018