Gabungan AQRS AQRS MK Sector: Construction & Infra

Transcription

1 Affordable housing focus We upgrade our call on Gabungan AQRS (GAQRS) to a BUY from Sell previously and revise up our target price (TP) to RM1.20 from RM0.70. We believe prospects for GAQRS to grow its construction order book and property development activities have improved. New CEO Dato Azizan Jaafar is driving the group s future growth by participating in various state governments affordable housing projects. We upgrade our FY16E EPS by 22% to reflect potential land sale gains. New affordable housing project On 5 May 2016, GAQRS announced that it has formed a 49%:51% joint venture with Monolight IBS Building System Sdn Bhd to build PR1MA homes in Kuantan, Pahang, for a contract value of RM424.2m. We gather that GAQRS will undertake the entire construction works for the project. Assuming EBIT margin of 6%, we estimate the project will generate EBIT of RM25m over the next 3-4 years. Good prospects for new projects GAQRS is vying for the RM300m Pahang state government administration centre project. GAQRS is also exploring opportunities to develop affordable housing in other states with potential multi-billion Ringgit gross development value (GDV). It also has a 19-acre land in Puchong South that it is negotiating with the federal government authorities to build PR1MA homes to be sold to eligible buyers identified by the government. New CEO to drive expansion New CEO Dato Azizan Jaafar jointly owns a 12.5% stake together with other senior management in GAQRS through Ganjaran Gembira. Given his good relationship with several state governments, opportunities for GAQRS to secure new projects are good. Upgrade to BUY We upgrade our call on GAQRS to BUY from Sell in view of the improved prospects. We change our methodology to derive our TP from PER to RNAV-based, which better reflects the good long-term prospects of its property development and construction projects. Our new fully-diluted RNAV/share estimate is RM1.33. Based on a 10% discount to RNAV, our new TP is RM1.20 (potential 36% upside). Key risks are project execution risk and earnings forecast risk if no new projects are secured. Earnings & Valuation Summary FYE 31 Dec E 2017E 2018E Revenue (RMm) EBITDA (RMm) Pretax profit (RMm) (7.9) Net profit (RMm) 52.9 (9.7) EPS (sen) 10.5 (0.9) PER (x) 8.4 (97.2) Core net profit (RMm) 52.9 (9.7) Core EPS (sen) 10.5 (0.9) Core EPS growth (%) 35.0 NA NA (10.4) 69.6 Core PER (x) 8.4 (97.2) Net DPS (sen) Dividend Yield (%) EV/EBITDA (x) Company Update Gabungan AQRS AQRS MK Sector: Construction & Infra 20 May 2016 BUY (upgrade) Upside: 36% Price Target: RM1.20 Previous Target: RM0.70 (RM) May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Price Performance 1M 3M 12M Absolute +5.4% +5.4% -32.7% Rel to KLCI +10.6% +8.4% -25.2% Stock Data Issued shares (m) Mkt cap (RMm)/(US$m) 347.5/83.9 Avg daily vol - 6mth (m) wk range (RM) Est free float (%) 17.2 BV per share (RM) 0.85 P/BV (x) 1.04 Net cash/(debt) (RMm) (4Q15) ROE (%) (2016E) 12.3 Derivatives Yes (Warr 13/18, WP RM0.195, EP RM1.30) Shariah Compliant Top 3 Key Shareholders Yes Lim Ann Kok 13.3% Ng Chun Seong 11.9% Ganjaran Gembira 12.5% Ng Chun Kooi 9.7% Source: Affin Hwang, Bloomberg Loong Chee Wei, CFA (603) cheewei.loong@affinhwang.com Chg in EPS (%) 22.0 (8.3) 23.4 Affin/Consensus (x) NA NA NA Source: Company, Affin Hwang forecasts, Bloomberg Page 1 of 7

2 New CEO in the driver s seat Besides being a substantial shareholder of GAQRS, CEO Dato Azizan Jaafar is also a director and shareholder of Tanah Makmur KotaSAS Sdn Bhd, a 65%-owned subsidiary of listed Tanah Makmur Bhd and the developer of the township where the Pahang state government administration will be located. GAQRS holds a 30% stake in KotaSAS Sdn Bhd. Hence, we believe GAQRS prospect to secure the construction contract worth about RM300m for the new administration is good. The previous CEO Ng Chun Kooi was redesignated as the Executive Vice Chairman. Mr Ow Chee Cheoon was appointed as Deputy CEO at the same time. Both remain substantial shareholders of GAQRS. Affordable housing focus GAQRS is pursuing opportunities in the construction and development of new affordable housing townships, either as project manager/contractor or joint venture property development partners with the state government. The advantage of being a joint venture partner to the state government is the ability to secure government land at a low price to make the development of affordable housing feasible. GAQRS is also exploring opportunities to develop affordable housing townships in other states with potential multi-billion Ringgit GDV. GAQRS also has a 19-acre land in Puchong South that it is negotiating with the federal government authority to build PR1MA homes to be sold to eligible buyers identified by the government. Estimated GDV of the project is RM314m. Growing order book Its first government housing project in the bag is the joint venture with Monolight to construct the PR1MA homes in Kuantan, Pahang, for RM424m. This has lifted its outstanding construction order book to RM627m, equivalent to 2x its FY15 construction revenue. Securing the KotaSAS contract and kicking off its One Jesselton Waterfront project (inhouse construction work is worth RM849m) will increase its order book to RM1.97m, equivalent to 6.4x its FY15 construction revenue. Fig 1: Construction order book as at 31 December 2015 Remaining Project value (RMm) Current projects Ongoing projects (The PEAK, Tropicana Metropark) 203 PR1MA homes, Bukit Gambang, Kuantan, Pahang 424 Subtotal 627 Future projects Pusat Pentadbiran Sultan Ahmad Shah, Kuantan, Pahang 300 One Jesselton Waterfront, Kota Kinabalu, Sabah 849 Plot G - PR1MA homes, Sepang, Selangor 196 Subtotal 1,345 Total 1,973 Source: Company Expanding property development activities Page 2 of 7

3 GAQRS is in the final stages of securing the state government approval to increase the plot ratio and the transfer of land title for its One Jesselton Waterfront (OJW) mixed development project in Kota Kinabalu, Sabah. We gather that negotiations with the land owner Suria Capital Holdings Bhd was protracted partly due to the change in CEO last year. Ng Kiat Min was appointed the new Acting CEO (previously CFO) of Suria Capital following the demise of former CEO Datuk Dr Mohd Fowzi Razi. GAQRS expects to kick off the development of OJW with an enlarged GDV of RM1.8bn by 4Q16. This will lift its total remaining GDV to RM3.2bn and sustain its property development activities for at least 4 years. Current unbilled sales for its property development projects is RM138.5m, which will be recognized in FY16. GAQRS also has completed units for its Contour, Kinrara Uptown and Permas Centro projects worth about RM105m that it plans to dispose off in FY16. GAQRS The PEAK high-end serviced apartment project saw a low take up rate of 40% since it was launched in April The project was affected by the slowdown in the Johor property market. It is negotiating for the potential enbloc sale of a substantial portion of its launched units to improve the future cash flows from this project. Fig 2: Project development projects as at 31 December 2015 Project Type Balance GDV Launch Duration (RMm) date (years) Current projects Contours, Taman Melawati, KL Residential - Courtyard Villas 57 Jul-10 5 Kinrara Uptown, Puchong, Selangor 2 & 4 storey shop offices 22 Jul-11 5 The PEAK, Johor Bahru Residential - Skyvillas serviced apartments 527 Apr-13 5 Permas Centro, Johor Bahru 3 & 4 storey shop offices 25 Mid Subtotal 632 Future projects One Jesselton Waterfront, Kota Kinabalu, Sabah Mixed development 1,800 4Q16 4 The Altium@Damansara Perdana, Selangor Serviced apartments 449 2Q17 3 Plot G - PR1MA homes, Sepang, Selangor PR1MA homes 314 1Q17 3 Subtotal 2,563 Total 3,195 Source: Company Land sale gains On 6 April 2016, GAQRS announced that its 52%-owned subsidiary Prestige Field Development Sdn Bhd has proposed to sell a 7.98-acre commercial leasehold land in Puchong to Stratmont Development Sdn Bhd for RM50.4m. GAQRS share of land sale gain after tax is RM7.6m, which will lift its earnings in FY16. Prestige has another 5-acre commercial leasehold land that it plans to sell. Mixed earnings revision We upgrade our FY16E net profit by 38% to reflect potential land sale gains. But the potential sale of Prestige s remaining land bank for the Kinrara Uptown project led us to remove the future property development earnings contribution, reducing our FY17E net profit by 2%. We upgrade Page 3 of 7

4 our FY18E net profit by 66% assuming new construction and property development projects are secured in FY16. We assumed EBIT of RM9m in FY17E and RM17m in FY18E from new projects to be secured. To be conservative, we fully-dilute our EPS assuming full conversion of its outstanding 160m warrants to new shares at exercise price of RM1.30, reducing the EPS impact of the net profit upgrades. Fig 3: Change in net profit and EPS forecasts FYE 31 Dec 2016E 2017E 2018E Old net profit (RMm) New net profit (RMm) Change (%) 37.6 (2.0) 33.3 Old EPS (sen) New fully-diluted EPS (sen) Change (%) 22.0 (8.3) 23.4 Source: Affin Hwang estimates Upgrade to BUY We upgrade our call on GAQRS to BUY from Sell in view of the improved prospects. We change our methodology to derive our TP from PER to RNAV-based, which better reflects the good long-term prospects of its property development projects. Our new fully-diluted RNAV/share estimate is RM1.33, valuing its construction arm based on PER of 14x and property development division based on net present value (NPV) assuming weighted-average cost of capital (WACC) of 7.7%. Applying a 10% discount to RNAV, our new TP is RM1.20 (potential 36% upside). Our previous TP of RM0.70 is based on FY16E PER of 10x. Fig 4: RNAV and target price Segments Stake (%) RNAV (RMm) PE 14x avg earnings of RM22m Property NPV at 7.7% WACC Net cash/(debt) (251) RNAV 527 No. of shares (m shrs) 391 RNAV/share (RM) 1.35 New shares from warrants conversion (m) 160 Fully-diluted no. of shares (m) 551 Fully-diluted RNAV/share (RM) 1.33 Target price at 10% discount to RNAV/share 1.20 Source: Affin Hwang estimates There are earnings forecast risk if no new projects are secured and existing projects face execution risks. Assuming no new projects are secured for its property and construction divisions while existing projects proceed as planned, our EPS forecasts will fall by 12-17% in FY17-18E. Our RNAV/share and target price estimates will be reduced by 14-15%. Page 4 of 7

5 Fig 5: EPS, RNAV and target price sensitivity assuming no new projects FYE 31 Dec 2016E 2017E 2018E Current fully-diluted EPS (sen) Fully-diluted EPS without new projects (sen) Change (%) 0.0 (12.2) (16.7) Current fully-diluted RNAV/share (RM) 1.33 Fully-diluted RNAV/share without new projects (RM) 1.14 Change (%) (14.3) Current target 10% discount to RNAV (RM) 1.20 Target price without new projects (RM) 1.02 Change (%) (15.0) Page 5 of 7

6 Gabungan AQRS - FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec (RMm) E 2017E 2018E FYE 31 Dec (RMm) E 2017E 2018E Revenue Grow th Operating expenses (417.9) (259.1) (312.8) (380.3) (488.2) Revenue (%) 31.5 (49.0) EBITDA EBITDA (%) 48.3 (88.4) (24.1) 46.2 Depreciation (5.8) (12.4) (14.9) (17.4) (19.9) Core net profit (%) 24.0 (118.3) (534.1) (11.6) 78.5 EBIT Net int income/(expense) (4.2) (9.1) (12.1) (12.4) (12.1) Profitability Associates' contribution EBITDA margin (%) Forex gain/(loss) PBT margin (%) 19.9 (2.9) Exceptional gain/(loss) Net profit margin (%) 9.9 (3.5) Pretax profit (7.9) Effective tax rate (%) 31.0 (105.5) Tax (33.0) (8.3) (8.0) (10.5) (18.7) ROA (%) 3.3 (0.5) Minority interest (20.4) 6.5 (20.2) Core ROE (%) 18.1 (3.0) Net profit 52.9 (9.7) ROCE (%) Dividend payout ratio (%) Balance Sheet Statement FYE 31 Dec (RMm) E 2017E 2018E Liquidity Fixed assets Current ratio (x) Other long term assets Op. cash flow (RMm) 2.8 (68.5) Total non-current assets Free cashflow (RMm) (51.8) (116.7) FCF/share (sen) (13.3) (29.9) Cash and equivalents Stocks Asset management Debtors Debtors turnover (days) Other current assets Stock turnover (days) Total current assets Creditors turnover (days) Creditors Capital structure Short term borrow ings Net gearing (%) Other current liabilities Interest cover (x) NA NA NA Total current liabilities Long term borrow ings Quarterly Profit & Loss Other long term liabilities FYE 31 Dec (RMm) 1Q15 2Q15 3Q15 4Q15 Total long term liabilities Revenue Shareholders' Funds Operating expenses (444.2) (446.7) (413.2) (425.8) Minority interests EBITDA Depreciation (9.9) (9.5) (9.2) (13.3) Cash Flow Statement EBIT FYE 31 Dec (RMm) E 2017E 2018E Net int income/(expense) EBIT Associates' contribution 0.0 (0.1) Depreciation & amortisation Forex gain/(loss) (2.1) (0.6) 1.4 (1.7) Working capital changes (82.7) (58.6) (25.1) Exceptional items (0.6) (2.2) (1.1) (1.9) Cash tax paid (26.7) (14.9) (8.0) (10.5) (18.7) Pretax profit Others (4.1) (8.4) (11.9) (8.7) (2.8) Tax (5.2) (3.8) (4.9) (1.0) Cashflow from operation 2.8 (68.5) Minority interest (0.0) 0.0 (0.5) (1.0) Capex (54.6) (48.3) 0.4 (50.0) (50.0) Net profit Disposal/(purchases) (3.2) (0.5) (62.5) (62.5) 0.0 Core net profit Others Cash flow from investing (57.8) (48.7) (62.1) (112.5) (50.0) Margins (%) Debt raised/(repaid) EBITDA Equity raised/(repaid) 38.4 (2.2) PBT Net interest income/(exp) (12.1) (12.4) (12.1) Net profit Dividends paid (19.2) Others (19.5) (8.0) Cash flow from financing (12.1) (12.4) (12.1) Free Cash Flow (51.8) (116.7) Page 6 of 7

7 Equity Rating Structure and Definitions BUY Total return is expected to exceed +10% over a 12-month period HOLD Total return is expected to be between -5% and +10% over a 12-month period SELL Total return is expected to be below -5% over a 12-month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT Industry, as defined by the analyst s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) ( the Company ) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel. Reports issued by the Company, are prepared in accordance with the Company s policies for managing conflicts of interest arising as a result of publication and distribution of investment research reports. Under no circumstances shall the Company, its associates and/or any person related to it be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Any opinions or estimates in this report are that of the Company, as of this date and subject to change without prior notice. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities. The Company and/or any of its directors and/or employees may have an interest in the securities mentioned therein. The Company may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences and hence an independent evaluation is essential. Investors are advised to independently evaluate particular investments and strategies and to seek independent financial, legal and other advice on the information and/or opinion contained in this report before investing or participating in any of the securities or investment strategies or transactions discussed in this report. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Company s research, or any portion thereof may not be reprinted, sold or redistributed without the consent of the Company. The Company, is a participant of the Capital Market Development Fund-Bursa Research Scheme, and will receive compensation for the participation. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) A Participating Organisation of Bursa Malaysia Securities Bhd Chulan Tower Branch, 3rd Floor, Chulan Tower, No 3, Jalan Conlay, Kuala Lumpur. research@affinhwang.com Tel : Fax : Page 7 of 7