INVESTMENT HIGHLIGHTS

• Results missed expectation, accounting 14.9% of our full year estimate.

• Gabungan experienced temporary blip in construction progress in 1QFY19

• Property’s revenue contracted by -9.4%yoy in 1QFY19

• Earnings forecasts adjusted lower for FY19/20

• We maintain BUY with lower target price of RM1.72

Results missed expectations. Gabungan AQRS (“Gabungan”) reported its 1QFY19 results, with earnings deviating from our full year forecast. PATAMI was booked at RM11.3m, lower by -31.4%yoy from the same period last year. Consequently, earnings accounted only 14.9% and 13.1% of our and consensus full year estimates respectively.

Temporary blip in construction progress. Construction being one of the key business segments has seen its 1QFY19 income dropped by - 36.2%yoy to RM70.1m. During the quarter, its revenue was largely recognized from the works done for SUKE Highway and Pusat Pentadbiran Sultan Alam Shah projects. It is worth pointing out that both projects accounted for approximately 17.6% of Gabungan’s outstanding job. During the period, the progress of LRT3 package was slower due to the cost review done by government. Subsequently, it resulted in Gabungan reporting lower segmental PAT by -69.0% at RM6.1m. The slowdown was partly expected, given the earlier guidance on new work timeline of LRT3. We noted that the progress was already picking up, which will likely manifest in 2QFY19.

Property’s revenue weakened, contracting by -9.4%yoy from corresponding period last year. This was attributable to lower work progress on the PEAK project. Positively, the division has rebounded from RM-1.4m earlier losses in 1QFY18, to book RM4.0m of PAT in 1QFY19. In subsequent quarters, we expect sales to gain support from the initiatives introduced such as a home ownership scheme and a cashback package. As of 1QFY19, Gabungan’s unbilled sales stood at RM91.5m with unsold property units valued at RM532.5m. Management is targeting RM500m sales in FY19, on the back of E’Island Lake Haven project in Puchong and the relaunch of The Peak in Johor Bahru City Centre.

Source: MIDF Research - 21 May 2019