“Potential re-rating catalysts are more contracts wins, especially by its STREAM automated waste collection system and plumbing divisions, which generate higher margins than facilities management works,” it said on Wednesday.
However, the downside risks to its call are contract execution delays and weaker-than-expected orderbook replenishment.
On Tuesday, AWC announced the termination of the contract for the facilities management of Terminal Bersepadu Selatan (TBS) in Bandar Tasik Selatan, Kuala Lumpur over a five-year period, from Sept 1, 2016 to Aug 31, 2021.
“This did not come entirely as a surprise to us given that AWC had on Aug 26, 2016 announced the deferment of the project's commencement. We gather that this deferment was due to issues with the previous contractor of TBS. Recent contract wins sufficient to offset this contract termination,” it said.
CIMB Research pointed out recently, AWC was awarded four contracts totaling RM131.4mil for facilities management works, similar to the rescinded contract for TBS.
“We previously did not account for these contract wins in our estimates to provide a buffer for any potential deferments or cancellations.
“Given that the value of the four contracts is sufficient to offset the loss of the TBS contract mentioned above, there are minimal changes to our order book assumptions. Hence, there is no material impact on our earnings estimates.
“As at July 1, 2017, AWC’s total outstanding orderbook stood at almost RM1.1bil, with RM537mil up to end-FY19F.
“Concessions, which are mainly long-term contracts ranging from three to 10 years, account for the bulk of the total outstanding orderbook at RM600mil to RM700m, while projects from the engineering and environment divisions make up the remainder,” CIMB Research said.