• MYR1.06 FV implying 12x FY25F (Jun) P/E. AWC is at the forefront of green technology via Stream Group, showcasing Malaysia's innovation prowess as an automated waste collection systems (AWCS) provider – capitalising on the global sustainability and smart urbanisation trends. With an orderbook at double its FY23 revenue, AWC ensures steady earnings amidst global mega development and dynamic construction projects, and its services to local healthcare facilities. Its commitment to sustainability via Stream makes it a compelling investment, with attractive FY25F ex-cash P/E of 5x.

• Transforming Stream into a profit powerhouse. With two consecutive years of profits surpassing AWC's, the full acquisition of Stream (from 51% owned) ensures complete profit consolidation, elevating the green division as AWC's leading profit generator (65.5% of FY25F core profit). Positioned as the world's leading AWCS provider, Stream is set to capitalise on global trends towards smart cities and cleaner living environments, benefitting from favourable government policies and increased global adoption of AWCS (2024-2030 CAGR: 10.3%). Stream’s state-of-the-art AWCS promotes green technology and fosters environmental sustainability by reducing carbon emissions, conserving energy, and minimising waste generation. Aside from strong traction from Malaysia and Singapore property developers, it sees opportunities in Indonesia and Saudi Arabia's mega development projects.

• Diversifying facilities management into healthcare. AWC’s subsidiary Ambang Wira strategically diversified its revenue from 90% concession earnings in FY2004 to 42% in FY23, driven by its non-concession integrated facilities management (IFM) contracts across commercial, healthcare, and academic sectors. Notably, it strengthened its presence in hospital support services (HSS), serving major healthcare institutions. Moving forward, it aims to secure more high-margin healthcare contracts.

• Robust orderbook. Stream, as well as AWC’s engineering division – specialising in plumbing services in Malaysia and mechanical & engineering (M&E) services in Singapore – should benefit from developments in the construction and property sectors. The rail division, bolstered by its strong track record, stands to gain from the revival of major infrastructure projects in Malaysia. With an outstanding orderbook of MYR767m and substantial tenderbook of MYR1.2bn as of 1 Jan 2024, AWC enjoys strong earnings visibility and growth prospects.

• Undemanding valuation. Based on SOP valuation of its FY25F earnings, AWC's fair value is MYR1.06. The current single-digit valuation and FY24F PEG of 0.08x are compelling, considering its dedication to environmental sustainability and above-industry FY23-25F earnings CAGR of 99%. Key risks: Project delays, rising input costs, slow pick-up in green technology, and receivables impairment risk.

Source: RHB Research - 3 Apr 2024