KEY INVESTMENT HIGHLIGHTS

• To recap, the group’s headline 3QFY19 PATAMI was at RM33.1m (-37.1%yoy)

• The planned One Jesselton Waterfront is expected to be a key driver for the group’s long-term earnings and cash flow

• Better LRT3 work progress

• Property division contribution still subdued

• Maintain BUY with an unchanged TP of RM1.65

To recap, the group’s headline 3QFY19 PATAMI was at RM33.1m (-37.1%yoy). The construction division was the key income driver in 3QFY19, with a revenue share of 89.2%. We note that the 3QFY19 income was largely contributed by the work progress for the Sungai Besi – Ulu Kelang (SUKE) Highway and Pusat Pentadbiran Sultan Ahmad Shah, Pahang.

Further details on the group’s plan were shared during a meeting yesterday at Gabungan AQRS. Below are some of the key takeaways:

The planned One Jesselton Waterfront is expected to be a key driver for the group’s long-term earnings and cash flow. The planned mixed waterfront development is underpinned by its strategic features which are (1) strategic location, (2) absence of comparable competitors, and (3) high number of tourists to Kota Kinabalu. It is notable that Kota Kinabalu International Airport serves the second highest number of tourists after KLIA. Plus, the waterfront is sandwiched between two important marine hubs which are Kota Kinabalu Ferry Terminal and Terminal Ferry Pasar Besar Kota Kinabalu. Upon its completion, the development is expected to generate NSV of more than 1.8 billion and potential recurring annual income of RM70 million.

Better LRT3 work progress. To recap, the group’s earnings shrank 33.6%yoy in 3QFY2019 due to lower work progress of LRT3. Moving forward, we anticipated better contribution from LRT3 due to (1) better work progress in 4QFY19, and (2) more efficient cost management. The work progress of LRT3 is expected to peak in 2HFY20. As of 30 September 2019, AQRS outstanding construction order book stood at RM1.8 billion, which will provide earning visibility until 2022.

Source: MIDF Research - 17 Jan 2020