Anchored by four main pillars, we reckon AWC is entering into a new earnings upcycle. In particular, the booming property market in Malaysia and strong housing pipeline in Singapore is poised to drive the growth of its Environment segment. Similarly, the Engineering pillar is set to ride on the said theme with DC being a potential boost factor. As for its IFM and rail segments, both are poised for strong earnings growth in FY27f, following the renewal of its existing contract and Penang LRT. All in, we project AWC’s core net profit to grow at a strong FY24-27f CAGR of 44.0%. We initiate coverage on the stock with a BUY rating at a TP of RM1.41, based on 14x CY25 P/E.

Four main pillars. Listed in 2003, AWC’s business is anchored by four main pillars: (i) Integrated Facility Management (IFM), (ii) Engineering, (iii) Environment, and (iv) Rail.

Environment: A prime growth driver. The strategic stake increase in STREAM (to 100%) is deemed to be an earnings-accretive move for AWC, helping to position the group to capitalize on the growing demand for modern waste collection solutions. STREAM, which commands c.90% market share in Malaysia, is well-placed to benefit from the country’s stronger property market outlook and anticipated rise in new launches, as well as Singapore’s robust pipeline of residential, office, and HDB developments. Meanwhile, in the Middle East, the region's booming infrastructure sector presents ample opportunities for AWC to secure additional contracts. Notably, the value of projects in the Middle East is typically much higher than those in Malaysia and Singapore due to their large scale nature.

Engineering: Riding on property and DC wave. Similar to its Environment segment, the expected growth in both Malaysia and Singapore property markets are seen to benefit AWC’s Engineering pillar. Separately, with its plumbing segment recently securing a prestigious MNC DC project, AWC is well positioned to ride the DC wave in Malaysia. Based on our estimates, the 4.7GW DC pipeline translates into an opportunity worth RM1.6–2.9bn for the plumbing sector. Notably, DC projects are fast-tracked, offering higher margins vs property-related jobs. Also, the rapid project turnover further enhances the performance and profitability of this segment.

IFM & Rail: At inflection point. With the bulk of AWC’s concession and non-concession contracts are set to expire in CY25–26, the renewal of these contracts are seen to significantly drive the profitability of its IFM segment, which has been eroded by cost escalation over the past three years. Meanwhile, the Rail segment is poised to secure a portion of the upcoming systems contract for Penang LRT, where management expects it to be valued at c.RM400m. Separately, the potential MRT3 and HSR project rollouts offer AWC strong opportunities to tap into in the future.

Strong earnings growth projected. We project AWC’s FY25/26/27 core net profit to grow by 88%/31%/20%, implying a respectable 3-year CAGR of 44.0%. This comes from: (i) the stronger performance at its Environment, Engineering, and Rail segments; (ii) margin expansion from more favourable revenue mix; and (iii) the renewal of its major IFM concession in FY27f.

Initiate with BUY at a TP of RM1.41, based on 14x CY25 P/E; this represents 15% discount to the pure-play property sector's 16.5x. We find this valuation method fair since c.70% of AWC’s profit is driven by the Environmental segment, where contract flows are closely linked to the property space. Overall, we believe the stock is poised to enter a new earnings upcycle, led by its Environment and Engineering segments in FY25f-26f, with further contributions from IFM and Rail expected from FY27f onwards.

Source: Hong Leong Investment Bank Research - 4 Feb 2025