KUALA LUMPUR: Affin Hwang Capital Research is maintaining its Buy call on property company Gabungan AQRS with a 12-month target price of RM1.95.
It said on Monday this is based on a 10% discount to the fully diluted end-2018E realized net asset value (RNAV).
“AQRS continues to drive order book expansion to capitalise on the current infrastructure boom. It is in a good position to win contracts for the LRT Line 3 (LRT3) and East Coast Rail Link (ECRL) projects.
“It is also negotiating with Tera Capital to jointly develop the hotel and service suite components of One Jesselton,” it said.
Affin Hwang Research said AQRS’ outstanding order book of RM1.66bil is equivalent to 7.6 times FY16 construction revenue, provides high earnings visibility.
AQRS has tendered for a LRT3 package worth RM1bil and plans to tender for the Pan Borneo Highway (PBH) Sabah and ECRL packages.
It could also secure subcontracts from Syarikat Muhibbah if the latter wins a Bumiputera package for the LRT3 worth RM800mil to RM900mil.
AQRS aims to secure RM1bil to RM1.4bil in new contracts in 2H17 (vs. an earlier target of RM700mil to RM1bil), which could expand its order book to RM3bil by end-2017.
Affin Hwang Research said AQRS’s de-gearing efforts paying off has been selling its property inventories and non-core assets to reduce its debt, resulting in net gearing reducing to 0.71 times in 2Q17 from 0.79 times in 2Q16.
The cash proceeds from land disposal and reduction in receivables are expected to reduce net gearing to below 0.4 times by end-2017.
AQRS is negotiating with MRT Corp to collect about RM150mil in variation orders and receivables, which will improve its financial position further and reduce interest expense by repaying some of its working capital loans.
Affin Hwang Research said is finalising negotiations with Tera Capital (which holds the Days Inn master franchise for China) to jointly develop the four-star hotel and service suite components of the One Jesselton Waterfront project in Kota Kinabalu.
The pricing and deal structure have not been finalised, but the estimated net sales value (NSV) of the two components is RM377mil (based on a RM1,300 psf valuation). AQRS may retain a minority stake in the two components to earn recurring income.
“We assume that the One Jesselton condominium will be launched in 4Q17 and construction works worth about RM849mil will start to contribute to earnings in FY18E. Maintain Buy,” it said.
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