AWC eyes rail-related asset management jobs

AWC also highlighted plans to use Trackworks as a platform to venture into rail asset management.

KUALA LUMPUR: AWC plans to plans to secure rail-related asset management jobs by working with government organisations or rail owners after the proposed purchase of a 60% stake in Trackworks and Supplies Sdn Bhd.

CIMB Equities Research said on Thursday Trackworks’ RM120mil outstanding orderbook over the next two years is expected to help Trackworks to achieve its RM20mil profit guarantee in FY18-19F.  

“Based on our initial estimates, this acquisition could raise FY18-20F EPS by 3.7% to 30.4%. This could add another 10.9% to our existing target price of RM1.28,” it said. 

The research house said AWC views the valuation of this acquisition at eight times CY18F P/E (based on profit guarantees of RM8m in FY18F and RM12m in FY19F. FY ends in September) as fair. 

Besides taking into account the two-year profit guarantee, Trackworks’ valuations were determined based on its strong earnings track record and established background in rail-related works. 

The deal also features a put-call option, valid for five years upon the completion of the transaction, allowing AWC to acquire the remaining 40% stake it does not own. 

“We gathered that Trackworks’ current orderbook stood at RM120m over the next two years. This consists mainly of supply, installation and commissioning of various track materials and track-related machinery. 

“Trackworks also has a tenderbook amounting to RM600m and it is confident it can achieve a conservative hit rate of 10%,” it said.

Trackworks has worked with many reputable names in the rail industry, such as Prasarana, MRT, KTM and Express Rail Link.  

AWC also highlighted plans to use Trackworks as a platform to venture into rail asset management. 

Using UK’s rail network as a model, AWC plans to introduce rail asset management programmes by working with rail asset owners and the Malaysian government. 

This will be based on either a concession model or contract basis. With more than RM150bn worth of rail projects in the nation’s pipeline, AWC is targeting to manage RM1.5bn worth of rail assets, in particular rail tracks. 

“Based on our back-of-the-envelope calculations, this acquisition could increase AWC’s FY18-20F EPS by 3.7-30.4%. 

However, we are not incorporating potential earnings accretion into our estimates pending the completion of the transaction. 

“Maintain our Add call on the stock and SOP-based target price of RM1.28. Downside risks to our view include the unexpected cessation of awarded contracts and termination of this proposed acquisition,” said CIMB Research.