Gabungan AQRS - Second IBS builder to be listed

Gabungan AQRS (“AQRS”) is a civil and building contractor specialising in Industrial Building System (IBS) based building construction. It has CIDB Grade-G7 and PKK Class-A licenses, which enable it to tender for government-related projects with unlimited contract value. In the past, the group has successfully completed numerous government infrastructure projects like the LDP extension, Seremban – Senawang federal road, 43 school blocks in Selangor & KL and Institut Kemahiran Belia Negara. AQRS has also participated in the bidding for MRT contracts as a subcontractor for stations and viaducts works. Its earnings visibility is well supported by its RM800m outstanding order book and a potential order book replenishment of at least RM320m in the near term i.e. from MRT contracts. We expect AQRS to secure more projects in the near term with the impact likely to kick in next year (FY13). While we are not assigning any ratings to the stock, we reckon that its fair value should be pegged at RM1.39, based on 7.0x FY13 PER. The targeted PER of 7.0x is at a 12% discount to our targeted 8.0x PER for Kimlun Corporation (“KIMLUN”, OP, TP: RM1.77), its closest peer. The small discount assigned above is because Kimlun already has the existing production line for IBS and will be the immediate beneficiary for MRT contracts such as the MRT2 tunnel lining segment.

Construction order book currently stands at c.RM800m. A huge chunk of its outstanding order book of RM350m out of the RM800m is expected to be  recognised in FY12 with the remaining RM500m over the next three years. Looking at its current tender book of RM1.6b and assuming a success rate of 20%, we expect AQRS will be able to secure new projects worth at least another RM320m in the near term.

Earning to grow at a double-digit rate. We expect AQRS’ earnings to grow to RM54.8m (+11%) and RM70.7m (+27%) in FY12 and FY13 respectively. The growth is well supported by its outstanding RM800m order book and a potential RM320m order book replenishment in FY12. We expect AQRS will be able to achieve gross margins of 22% and 32% for its construction and property division respectively in FY12.

Small-size land developer. AQRS currently has several property projects on its own namely The Residency, Contours and Gombak Grove. To date, the group has a total land bank of 32 acres strategically located in Klang Valley and Johor Bahru with a GDV of RM1.4b. The group typically secures small pockets of strategic land banks and then develops them into niche lifestyle property products. This allows the group to have a better management and planning of its projects and cash flow and incurs a lower risk compared to other property developers, which often have to gear up to acquire major large pieces of lands that require a longer time to be developed.

Healthy balance sheet. AQRS’ gearing stood at 0.5x as of FY11 and it is expected to be in a net cash position post-IPO. While there will be a planned utilisation of RM24.8m for land banking, the balance sheet will still remain healthy at a net cash position of RM15m. AQRS is expected to raise up to RM73.2m from its IPO to be utilised for listing expenses (8%), corporate headquarters (16%), land banking (34%) and the remainder for working capital (42%).

Dividend policy of 25%. AQRS has set a formal dividend policy of a 25% payout from net earnings, which implies gross dividend yields of 3.3% and 4.2% for FY12E and FY13E respectively (based on the IPO price of RM1.18).

Source: Kenanga