KEY INVESTMENT HIGHLIGHTS

• Earnings fell short of our and consensus expectations

• AQRS construction division revenue increased +15.6%yoy in 1QFY20

• Property segment revenue plunged by -94.5%yoy in 1QFY20

• Earnings forecasts revised lower

• Reaffirm BUY on Gabungan AQRS at adjusted TP of RM1.01 (from RM1.42)

Earnings fell short of our and consensus expectations. AQRS reported earnings of RM3.9m (-65.2%yoy) in 1QFY20 which lagged expectations as it accounted for only 6% and 8.1% of our and consensus full year estimates.

AQRS construction division registered an increase in revenue to RM95.2m (+15.6%yoy) in 1QFY20 compared to RM82.4m in 1QFY19. Higher figure in revenue in the current quarter was on the back of the work progress of in-house projects, The Peak and EÍsland Lake Haven. While the Group reported better improvement in topline of construction division, it posted lower profit before tax (PBT) of RM5.9m in the current quarter, lower by -21.1%yoy compared to RM7.5m in the previous year. The contraction was due to lower profit margin for the inhouse projects as compared to external projects. Moreover, the work progress for external projects during the current quarter was lower compared to the preceding year quarter. Additionally, it is worth noting that AQRS current outstanding order book stood at RM1.84b, which will provide earnings visibility until 2023 - including the latest job award, i.e. RM36.7m drainage works for the East Coast Rail Link (ECRL) project in Pahang which commencing end of June FY20.

Property segment revenue plunged by -94.5%yoy to RM0.7m (from RM13.4m) in 1QFY20, steered by lower work progress on The Peak project compared to the year before. On a positive note, the reintroduction of the new Home Ownership Campaign by the Government under the Penjana Short-term Economic Recovery Plan would impact positively on AQRS’s property development segment as the campaign bodes well for the Group’s ongoing property developments, namely E’Island Lake Haven, The Peak and Contours Melawati Height.

Source: MIDF Research - 29 Jun 2020