• Stay BUY with new MYR0.46 TP from MYR0.53, 59% upside, c.3% yield. Gabungan AQRS’ 1QFY25 (Jun) core profit of MYR2m missed our estimates – accounting for 6% of both of our and Street’s projections. The negative deviation was due to the slower-than-expected construction segment and higher-than-expected cost of sales. Aside from a track record in previous infrastructure projects, the group’s property project in Johor Bahru, The Peak (GDV: MYR603m) may see further visibility due to its proximity with the Johor Bahru-Singapore Rapid Transit System Link station.

• AQRS’ construction segment recorded a core PBT of MYR2.4m in 1QFY25 (or 3QCY24) vs a PBT of MYR5.1m a year ago (in 3QCY23). This was primarily driven by the E’Island Lake Haven and Light Rail Transit 3 (LRT3) projects. Meanwhile, the property arm saw a core PBT of MYR4.3m in 1QFY245 vs a PBT of MYR7.6m a year ago.

• AQRS has a MYR407m outstanding orderbook, which we view is reasonable at this juncture as job awards have yet to pick up. Near-term job wins may come from one of the five LRT 3 stations planned for reinstatement. Importantly, AQRS has managed to pare down its debt by c.MYR53m from 1QCY23 until 2QCY24 – translating into a lower net gearing ratio of 0.3x in 3QCY24 vs 0.33x in 1QCY23. Such headroom shall enable the group to gear up for the upcoming infrastructure jobs. As for the property arm, earnings are backed by its unbilled sales of MYR206m while future earnings later may come from the Gambang Residensi project in Pahang with a c.MYR350m GDV (target launch in 1QCY25) and also The Peak in Johor.

• As results missed estimates, we cut FY25-27F earnings by 14%, 13%, and 14% as we impute a slower recognition of some construction projects and more conservative cost assumptions. As a result, we have a new SOP-derived TP of MYR0.47 (from MYR0.53) which includes a 2% ESG discount. With the LRT3 project nearing completion, we envisage provisions to be written back to the bottomline and hence, strengthen margins in the coming quarters.

• A catalyst for AQRS is the rollout of the phase 1B of Pan Borneo Highway Sabah that may benefit its 49%-owned precast business (SEDCO Precast). Contracts to supply precast components to the said project are valued at an estimated range of MYR400-500m (to be at subcontractor level). The formation of new property development JVs by AQRS (on top of Gambang Residensi in Pahang) may also serve as a catalyst. Given the plethora of catalysts and its track record in infrastructure projects (Mass Rapid Transit 1, SUKE Highway, LRT3), the stock is attractive – trading at more than -2SD below its 5-year mean P/E and the Bursa Malaysia Construction index’s – hence, our BUY call.

• Key downside risk: Failure to secure new contracts in a timely manner.

Source: RHB Securities Research - 28 Nov 2024