INVESTMENT HIGHLIGHTS

• Results slightly lagged our expectation

• In 12MFY18, revenue was stronger, growing by +25.1%yoy

• New launches expected to drive growth in property earnings

• Reaffirm earnings assumption

• Maintain BUY call with an unchanged TP of RM1.87

Results slightly lagged our expectation. AQRS’s 12MFY18 PATAMI came in below our expectation at RM63.6m (-5.7%yoy), accounting for 91.0% of our estimate. However, we note that the street estimate was 96% accurate.

In 12MFY18, revenue was stronger, growing by +25.1%yoy to RM582.5m. Largely, the growth was driven by construction segment which have recognized +69.3% higher revenue compared to the same period last year. Whilst this was positive, the overall PBT has declined by -16.2%yoy to arrive at RM87.3m. We opine this was largely due to overall higher cost-to-revenue ratio, as reflected by the lower gross profit of -13.4%yoy during the year. The slowdown of LRT 3 progress and the high-base effect in FY17 (due to one-off item) were also seen leading to the drop. Going ahead, we expect the progress of SUKE and PPSAS projects will remain as key contributors to the construction segment. The progress of LRT3 will only resume in 2HFY19, which we expect to improve earnings further in FY19 until completion.

New launches to drive property earnings growth. During the year, property’s contribution was minimal, reporting only RM24.5m in revenue. As a result, it extended losses amounting to -RM24.8m. Moving ahead, AQRS is expecting improvement to earnings, banking on sizeable unsold units of its affordably-priced apartment at E’Island Residence. The Peak in Johor Bahru will be relaunched in 2Q19, with unsold property units valued at RM451.7m estimated to contribute to property earnings in the next four years (from FY19 to FY22).

Reaffirm forward earnings estimates. As of 31 December 2018, its outstanding orderbook stood at RM2.2b, providing earnings visibility for the next 3 years. We expect our forward earnings estimates to be intact hence we reiterate our BUY call on AQRS with an unchanged TP of

RM1.87. The downside risks to our call are 1) slower progress rate on outstanding jobs, and 2) lower than expected job replenishment.

Source: MIDF Research - 1 Mar 2019