Affin Hwang upgrades Gabungan AQRS to buy

KUALA LUMPUR: Affin Hwang Capital Research upgraded Gabung AQRS Bhd to buy from hold with a higher target price of RM2.25 from RM2.14, as it sees good prospects to grow its current order book of RM2.9bil.

The research firm noted that AQRS is bidding for the East Coast Rail Link (ECROL), federal government projects in Kota SAS and the Pan Borneo Highway Sabah work packages.

"We believe prospects are good for AQRS to win the contracts, given its (1) established construction operation in Kota SAS, Pahang, which the ECRL runs through; and (2) partnership with Suria Capital, which is a majority-owned listed entity of the Sabah state government, to bid for the PBH Sabah packages. 

"It is targeting to secure RM1.5bn in new contracts in 1H18. We assume in our earnings forecasts that AQRS will clinch RM2bn worth of new contracts in FY18 and RM1bn p.a. in FY19-20."

It noted also that AQRS received RM78mil from MRT Corp for some of its VO claims in 4Q17, related to works completed for teh RM523mil Klang Valley MRT Line 1 Package V1 project.

Profit after tax of RM33.3mil was recognised in 4Q17, offsetting the RM12.2mil liquidated ascertained damages for The Peak condominium project and RM17.5mil write-down for the Altium development cost.

"The improved working capital management, land sale proceeds and MRT1 VO claims reduced its net gearing to 0.11x at end-FY17 from 0.67x at endFY16. 

"We gather that potential VO claims of RM20m for the MRT1 project and improved operating cash flow could see AQRS turn net cash positive in 1Q18."
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