KEY INVESTMENT HIGHLIGHTS

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

• The Group has fully mobilized their resources for LRT3 package since February and as a result works progress smoothly

• Moving forward, AQRS plans to introduce new hospitality division in FY25

• Reaffirm BUY on Gabungan AQRS at TP of RM1.42

To recap, 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. AQRS construction division reported a massive - 40.3%yoy contraction in revenue to RM84.0m in 4QFY19 due to (1) extension of completion date resulting from changes in interior design plan by the client for Pusat Pentadbiran Sultan Ahmad Shah project, and (2) new work program for LRT3 package.

Further details on the group’s 4QFY19 performance were shared during a results briefing yesterday at Gabungan AQRS.

Below are some of the key takeaways:

The Group has fully mobilized their resources for LRT3 package since February and as a result works progress smoothly. Substructure works for 2 stations, namely (1) Glenmarie Station and (2) Stadium Station, have commenced in February 2020 and will be followed by structure works. Moreover, bored piling works is at 60% progress. LRT3 work progress is anticipated to peak in 2HFY21 with estimated revenue of RM20-30m per month. It is worth noting that the scheduled completion date for LRT3 package is in FY24. However, AQRS is targeting to complete it by FY23, which can lead to (1) saving in overhead costs, and (2) improve margin.

Moving forward, AQRS plans to introduce new hospitality division in FY25 which will initially consist of its planned 4-Star Hotel under One Jesselton Waterfront Kota Kinabalu. We opine this new division will contribute positively to AQRS’s earnings as well as help the Group to achieve better overall margin

Earnings forecasts unchanged. Post 4QFY19 results briefing, we make no adjustments to our FY20/FY21 forecasts as the briefing yielded no material +/- surprises.

Reaffirm BUY on Gabungan AQRS at unchanged TP of RM1.42 from RM1.65. Our TP is derived based on a PE multiple of 10x to FY21EPS.

Source: MIDF Research - 3 Mar 2020