PETALING JAYA: Engineering services outfit AWC Bhd
’s environment order book stands at a record high but lower anticipated contributions from the Middle East are expected to weigh on overall profitability.
Contributions from engineering, facilities and rail may provide partial cushioning, but unlikely to fully offset this impact, said Hong Leong Investment Bank.
It downgraded the stock to a “hold” with a lower target price of 56 sen a share from 77 sen a share based on nine times financial year ending June 30, 2026 (FY26) earnings per share to reflect elevated execution risk due to the exogenous events in the Middle East.
It also cut the company’s FY26 earnings by 15% as well as FY27 and FY28 earnings by 8% and 16%, respectively, to reflect lower profitability from a slower Middle East ramp-up. Its revised forecasts now sit 20% to 25% below consensus.
The recent war between the United States-Israel and Iran, with spillover to Saudi Arabia and the United Arab Emirates, could delay project execution in the region.
The research house added that the ongoing geopolitical uncertainty in the region could also dampen investor risk appetite towards names with direct exposure.
Its earnings cut mainly reflected the timing and geographical mix rather than weaker adoption of the company’s automated waste collection system.
It said the company’s environment order book remains at a record RM224mil versus its previous peak of RM190mil, with incremental opportunities largely concentrated in Singapore’s Housing and Development Board and Malaysia’s property segments.
In view of uncertainties in the Middle East markets, it expects FY26 to FY28 revenue contribution to tilt more towards Malaysia and Singapore.
Given that Middle East projects typically carry higher margins, this shift in revenue contribution would likely keep profitability at a relatively lower level, in its view.
It now forecast FY26 environment revenue of RM80mil versus management’s RM100mil target, implying a more measured second half FY26 ramp-up.
It said engineering and facilities has shown improving momentum in the first half of FY26. It expects the engineering segment to sustain the current run rate, while facilities should expand gradually.
These would be supported by two Public Works Department projects, the Telekom Malaysia Bhd data centre and the Works Ministry’s concession.
