Gabungan AQRS is set to be listed on the Bursa Main Market with an initial market cap of over RM400m on 31st July. We like its decent orderbook strength, ambition to take its Industrial Building System to East Malaysia, as well as its potential to bag Public-Private Partnership initiatives which will provide recurring earnings. With a target GDV of RM1.44bn over the next few years, its property development business will propel earnings growth. The stock is NON-RATED, with our FV at RM1.37, based on a 9x FY13 PER.
Decent track record. Gabungan AQRS started in 1996 as a civil and building contractor. To date, it has delivered construction projects worth close to RM900m. It holds a Construction Industry Development Board Grade G7 licence, which allows it to tender for projects of any value, as well as a Pusat Khidmat Kontractor Class A licence to undertake main contracting works for Government contracts. Elsewhere, it is also involved in property development and possesses about 13ha of landbank in Klang Valley, Penang and Johor.
Construction orderbook piles up. Gabungan’s outstanding construction orderbook stands at RM257m while its tender book amounts to about RM1.64bn. Assuming a tender success rate of 30%, the group might potentially secure jobs worth as much as RM500m. We forecast an orderbook replenishment of RM200m for 2HFY12, followed by RM500m a year for both FY13 and FY14. Going forward, management aims to penetrate the East Malaysian market, possibly by forming strategic tie-ups with local partners, or by acquiring or setting up its own pre-cast plant there.
On the lookout for PPP initiatives. The group is actively looking at Public-Private Partnership (PPP) initiatives which typically involve a Build, Lease, and Transfer operating model. Should such endeavours materialize, Gabungan would be embarking on its maiden venture as a concessionaire, in which the company will build the physical structure and lease it to third parties. The IRR for such projects are typically in the mid-teens and we expect more news on this front come 1H13.
Property launches to progressively come on-stream. Gabungan has lined up a few major property projects with a total estimated GDV of RM1.44bn, which will last it until 2015. Even as the company sits on unbilled sales of RM144.5m as of 2QFY12, we are forecasting property sales of RM100m, RM110m and RM120m from FY12 to FY14 respectively.
FV RM1.37. We expect Gabungan’s core earnings to grow at 2.4%-7.7% p.a. and break the RM50m threshold by end-FY12. This sturdy revenue growth, however, would be partly offset by a minor blip in overall margins owing to more competitive bidding within the construction industry. Pegging a 9x FY13 PER to our valuation, our FV for the stock is RM1.37.
Source: OSK
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