Solid order book to spur Gabungan AQRS earnings

PETALING JAYA: Lower-than-expected progress billings saw Gabungan AQRS Bhd’s net profit for the first quarter (Q1) ended March 31, 2021 coming in below analysts’ expectations.

While earnings lagged, a positive for the construction and property development group is its solid order book of about RM1.3bil.

This translates into earnings visibility for the next two to three years, although progress billings and property sales may continue to be affected until the economy fully reopens.

“With an adequate orderbook, Gabungan AQRS will continue to be selective and ensure that new jobs obtained comply with its internal risk evaluation and offer a good risk-reward ratio. The company has set a RM400mil orderbook replenishment target for 2021 and will continue to pursue selective opportunities in the private space and government projects,” said UOB Kay Hian in a report yesterday.

In the first quarter of FY21, Gabungan AQRS reported a core net profit of RM4.5mil - up about 16% year-on-year, but down about 48% quarter-on-quarter (q-o-q).

UOB Kay Hian noted that he q-o-q lower earnings were mainly because of the decline in the property division’s profit before tax (PBT), which came in at RM0.4mil versus RM3.9mil in the fourth quarter of financial year 2020 (FY20).

As for construction, the segment’s PBT improved to RM5.9mil versus a loss before tax of RM1.7mil in the previous fourth quarter of FY20, it said.

The research firm said it gathered that most of Gabungan AQRS’ construction sites are allowed to work during the lockdown, but with a 60% workforce restriction.

It said the company also highlighted that its Pusat Pentadbiran Sultan Ahmad Shah and SUKE toll plaza works are nearing completion.

That said, its previous expectation of an earnings recovery starting from the second quarter of FY21 is now a little delayed after the resurgence of Covid-19 cases that has led to another lockdown.

The research firm said the 60% workforce restriction may slow progress billings, while higher Covid-19-related operating costs and the rise in construction material prices, such as steel bars will also exacerbate margin reduction.To reflect these factors, the research firm said it is cutting its FY21-22 forecast earnings by 42% and 17% respectively.

MIDF Research, while expecting a potential ramp-up of work pace in the second half of the year to make up for the time loss, has also revised its earnings estimates downward for FY21 and FY22 to RM25.4mil and RM41.9mil, respectively, on lower revenue assumption due to lower productivity from Covid-19 imposed restrictions and higher raw materials costs.

But it remains sanguine on the group’s earnings recovery prospects.

“We opine that the group be one of the beneficiaries for the continuation of mega public infra projects such as the Mass Rapid Transit Line 3, Pan Borneo Highway and the Klang Valley Double Tracking Phase 2 as announced in Budget 2021, which would bode well for orderbook replenishment moving forward,” it said.

MIDF maintains a “buy” on the stock with revised target price to 75 sen from 85 sen before.

UOB Kay Hian, meanwhile, downgraded the stock to a “hold” with a lower target price of 65 sen from 78 sen previously.

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Gabungan AQRS Bhd , lockdown , Covid-19


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