AWC also highlighted plans to use Trackworks as a platform to venture into rail asset management.
KUALA LUMPUR: CIMB Equities Research is maintaining its add call for AWC Bhd
with a target price of RM1.26 due to its lower price-to-earnings ratio (PER), health balance sheet and strong earnings prospects.
The research house said on Monday it was confident the engineering services group would deliver stronger results in FY19F.
“While most of its engineering projects that faced cost overruns have been completed, we believe the group will also benefit from full-year contribution from new projects secured by the facilities management segment in FY18.
“AWC will also start consolidating Trackwork and Supplies’ (TWS) earnings in 2QFY19F. Note that TWS has given AWC a profit guarantee to deliver PAT of at least RM8mil in FY9/18F and RM12mil in FY9/19F (TWS financial year ending is in September),” it said.
CIMB Research said its TP of RM1.26 was based on 11.2 times CY19F P/E, at a 10% discount to its biggest market cap peer, UEM Edgenta’s (Not Rated) current CY19F P/E.
It finds AWC attractive given: i) it is trading at 8.7 times CY19F P/E, at a 15% discount to its historical five-year mean of 10.1 times, ii) its healthy balance sheet (RM44.4mil net cash position as at 4QFY18), and iii) strong earnings prospects. Key downside risks: contract execution delays and/or cost overruns in sizeable projects.
Commenting on AWC’s results for the financial year ended June 30, 2018, it said AWC’s stronger facilities segment offset by weak engineering results.
Net profit declined 1% on-year, as stronger results from its facilities division (FY18 profit before tax) growth for this segment was up 100% on-year) was offset by weak results from the engineering division (FY18 PBT decline by 75.4% on-year).
The decline in profitability of its engineering business was owing to cost overruns from air-conditioning projects (most of these have since been completed) and unforeseen delays in certain projects.
AWC reiterated that it remains upbeat about TWS’s prospects.
To recap, AWC recently received shareholders’ approval to acquire a 60% stake in TWS for RM43.5mil.
Despite cancellation and/or deferment of major rail projects in Malaysia, AWC is confident that TWS is well positioned to benefit from rail projects that have not been cancelled.
“We gather from AWC that TWS has an outstanding order book of RM70mil, and tender book of RM900mil, which excludes any contribution from cancelled projects,” CIMB Research said.
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