KEY INVESTMENT HIGHLIGHTS

• AQRS secured RM36.7m ECRL job award

• Duration of contract is 22 months

• Neutral on the job win within replenishment assumption

• No change to our earnings forecasts

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

AQRS secured RM36.7m ECRL job award. Gabungan AQRS announced on Bursa yesterday that the Group has received and accepted Letter of Acceptance (LOA) from China Communications Construction (ECRL) Sdn Bhd. The LOA to undertake drainage works for the East Coast Rail Link (ECRL) project in Pahang. Under the LOA, the award involves construction and completion of subgrade, drainage and culvert works at the base camp of the project.

Duration of contract. The contract period for the ECRL is 22 months, commencing end of June 2020.

Neutral on the job win. The new job contract has lifted its construction outstanding order book to an estimated of RM1.84b from RM1.80b as of early of March. Nonetheless, we are neutral on the award as it is well within our FY20 total job replenishment target – which is RM0.5b. Nonetheless we are upbeat on further inflow of new contracts and expect more job awards in the coming months.

No change to our earnings forecasts. Premise on above, we make no changes to our earnings forecasts.

Our views. This ECRL contract is expected to contribute positively to the future earnings of AQRS. Downside risks include (1) disruption in the building material supply chain, and (2) additional construction site restrictions. On a separate note, going ahead, we anticipated a better contribution to AQRS’s earnings from LRT 3 works on the back of better work progress. Other than that, we anticipate good news on Pan Borneo Highway Sabah (PBH) project given that AQRS has already submitted tender for PBH packages with Suria Capital.

Recommendation. We maintain our BUY stance with an unchanged TP of RM1.42. Our TP is derived based on a PE multiple of 10x to FY21EPS.

Source: MIDF Research - 4 Jun 2020