KEY INVESTMENT HIGHLIGHTS

• AQRS posted lower revenue in FY19 at RM413.0 (- 29.4%yoy)

• AQRS construction division reported a massive contraction in revenue to RM84.0m (-40.3%yoy) in 4QFY19

• Property division improved

• AQRS outstanding construction order book stood at RM1.8 billion, which will provide earning visibility until 2022

• Reaffirm BUY on Gabungan AQRS with adjusted TP of RM1.42 (from RM1.65)

AQRS posted lower revenue in FY19 at RM413.0 (- 29.4%yoy), dragged by the (1) recognition of liquidated ascertained damages (LAD) for The Peak in Johor Bahru amounting to RM6.7m, as well as (2) lower work progress achieved in the current quarter for construction segment. As for the Group’s PATAMI, it registered cumulative earnings of RM38.5m (-37.1%yoy) in FY19 which lagged expectations as it accounted for only 73.3% and 76.5% of our and consensus full year estimates.

AQRS construction division reported a massive contraction in revenue to RM84.0m (-40.3%yoy) in 4QFY19 compared to RM140.6m in 4QFY18. The decline was due to (1) the extension of completion date resulting from changes in interior design plan by the client for Pusat Pentadbiran Sultan Ahmad Shah project, and (2) the new work program for LRT3 package – which led to lower work progress for construction segment. At the profit before tax (PBT) level, this division reported PBT of RM63.1m in 4QFY19, a 276% increase compared to the previous year. The increase was underpinned by one-off accounting adjustment (MFRS 9 – re-measurement of expected credit loss rate) which resulted in a non-cash gain of RM56m. However excluding this, the Group’s construction division booked PBT of RM6.8m in 4QFY19 (- 79%yoy) as a result of slowdown in LRT3 works.

Property division improved. The Group’s property development segment revenue was higher at RM5.4m in 4QFY19. We note that this division posted revenue of RM4.3m from its project E’Island Lake Haven while recognizing a negative RM6.7m LAD for The Peak. Moreover, the property development division reported a lower loss before tax (LBT) of -RM5.1m in 4Q19 compared to -RM11.4 million in 4QFY18 attributed to positive contributions from E’Island Lake Haven.

Source: MIDF Research - 2 Mar 2020