Gabungan AQRS 'buy', N2N Connect 'buy'

  • Business
  • Thursday, 23 May 2019

Gabungan AQRS Bhd

By MIDF Research

Rating: Buy (maintained)

Target price: RM1.72

Gabungan AQRS Bhd is targeting RM1.5bil worth of new jobs for the financial year ending Dec 31, 2019.

According to MIDF Research, the group’s current tender book is largely made up of infrastructure work.

As such, the timeline on the job awards is dependent on the government’s finalisation on the review and rollout of key projects.

“Gabungan is supported by RM2.4bil worth of outstanding order book, to keep the company busy until FY21.

“We remain a believer in Gabungan’s growth story that is underpinned by its fundamental and strategic factors,” said MIDF Research in a recent report.

Gabungan’s first quarter FY19 financial results saw its profit after tax and minority interest (Patami) decline by 31.4% year-on-year (y-o-y) to RM11.3mil, compared to the same period last year.

During the quarter, the group’s revenue was largely recognised from construction works done for SUKE Highway and Pusat Pentadbiran Sultan Alam Shah projects.

Note that both projects accounted for approximately 17.6% of Gabungan’s outstanding jobs.

Apart from that, the progress of the LRT3 package was slower due to the government’s cost review.

As a result, Gabungan reported a 69% lower segmental net profit at RM6.1mil.

“The slowdown in the LRT 3 project was partly expected, given an earlier guidance on the new work timeline of LRT 3.

“Progress has been picking up since, which will likely manifest in the second quarter of FY19,” said MIDF Research.

Gabungan also saw its property revenue weakened during the quarter under review, contracting by 9.4% y-o-y from the corresponding period last year.

This was attributable to lower work progress on the PEAK project.

On a positive note, the property division has rebounded from the earlier losses of RM1.4mil earlier losses in the first quarter of FY18, to RM4mil of net profit in the first quarter of FY19.

“In the subsequent quarters, we expect sales to gain support from initiatives such as home ownership schemes and cashback package.

“Management is targeting RM500mil sales in FY19, on the back of E’Island Lake Haven project in Puchong and the relaunch of The Peak in Johor Baru City Centre,” said MIDF Research.

As of the first quarter of FY19, Gabungan’s unbilled sales stood at RM91.5mil with unsold property units valued at RM532.5mil.


By Ambank Research

Rating: Buy

Fair Value: RM0.95

AmBank Research is maintaining its buy call on N2N Connect Bhd (N2N) due to its leading position in the online trading solutions space and its earnings accretion from the acquisition of its Hong Kong subsidiary, AFE Solutions Limited (AFE).

The research house said the affordability of its TCPro Global trading platform could also help the group boost its market share from global competitors such as Bloomberg and Thomson Reuters.

However, AmBank is cutting N2N’s financial year 2019 to 2021 forecast (FY19F-FY21F) by 13% to 18% on the back of subdued trading volume.

“We also reduce our fair value to RM0.95 per share (previously RM1.18/share), pegged to an unchanged FY19F price-to-earnings ratio of 25 times,” it said.

N2N’s average daily trading volume fell 15% y-o-y while traded value dipped 26% y-o-y.

Although the group’s first quarter ended March 31, 2019 (1Q19) net profit rose 23% year-on-year (y-o-y) to RM5.4mil, Ambank said it fell short of its full-year and market consensus forecasts, accounting for 19% and 21% respectively.

This was mainly due to lower trading activities in the local equity market.

It added that N2N’s earnings in the near-term would be driven by the replacement of back office system (BOS) as it targets to secure two to three more BOS contracts worth RM12-RM36mil this year.

“Earnings contribution from this will be spread out until FY20, depending on the time of implementation,” AmBank said.

Moving forward, it added that N2N’s margins are expected to improve as overlapping licences will be terminated progressively upon expiry.

“On top of that, the cost savings from the AFE side has led to seven percentage point increase in pre-tax margin,” AmBank noted.

Moreover, N2N expects to launch a new digital platform in mid-FY19 based on blockchain technology allowing trading of multiple financial instruments in one venue, including equities, derivatives and currencies.

Although the digitalised platform would provide better accessibility, improved liquidity and lower transaction cost, the research house said it has not factored in earnings contribution from the platform as adoption could be slower than expected due to current weak market sentiments.

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