Gabungan’s earnings outlook remains positive


MIDF Amanah Investment Bank Bhd remained positive on Gabungan AQRS Bhd’s earnings recovery prospects driven by a strong outstanding orderbook.

The research outfit noted that Gabungan currently boasts a RM1.3 billion orderbook that provides earnings visibility over the next three years.

MIDF has maintained its ‘Buy’ call on Gabungan, but reduced its target price (TP) to 75 sen from 85 sen previously.

The decline in TP was as a result of pegging of an unchanged price-to-earnings ratio (PER) of 8.9 times to the group’s financial year 2022 (FY22) earnings per share of 8.5 sen, as it rolls over the valuation base year to FY22.

MIDF noted that the premium on PER is mainly premised on the positive sentiments on the local construction players which are poised to benefit from the larger Budget 2021 allocation for development spending on mega public infrastructure projects.

“We remain sanguine on the group’s earnings recovery prospects, predicating on its healthy outstanding orderbook and prompt resumption of work operations as reflected in its increase in earnings in the first quarter ended March 31, 2021 (1Q21), despite movement restriction measures.

MIDF expects a continuous financial improvement in coming quarters following the resumption of construction and business activities and 60% workforce capacity at work sites which are less affected by the third Movement Control Order (MCO 3.0).

Moreover, the research firm stated that there’s a potential ramp-up of work pace to make up for the lost time and this could speed up the progress billings in the second half of 2021.

MIDF expects Gabungan would be one of the beneficiaries of the continuation of mega public infrastructure projects such as the Mass Rapid Transit Line 3, Pan Borneo Highway, Klang Valley Double Tracking Phase 2 and East Coast Rail Line as announced in Budget 2021 and a potential domestic Kuala Lumpur to Johor Baru high speed rail which would bode well with its orderbook replenishment moving forward.

MIDF also revised Gabungan’s earnings estimates downward for FY21 and FY22 to RM25.4 million and RM41.9 million respectively, on lower revenue assumption on lower progress billing due to lower productivity due to movement restrictions and higher cost assumption on higher raw materials costs which slightly negatively affected profit margin at the construction division.

For 1Q21, Gabungan’s normalised earnings came in higher by 3.3% year-on-year (YoY) to RM4.2 million, mainly due to the higher progress work achieved from both its construction and property development projects.

MIDF added that the earnings came in below its and consensus expectation, accounting for 8.9% and 9.8% of its full year FY21 earnings estimates as operations were impacted during MCO 2.0.

Moving forward, the research house expects Gabungan’s construction and property segments’ earnings recovery momentum to continue in coming quarters.

The group’s construction segment reported a higher revenue of RM97.6 million in 1Q21, while the profit after tax was lower by 7.4% YoY to RM4.3 million as a result of higher operating cost.

However, MIDF expects the group to sustain its earnings recovery in coming quarters on higher progress billings as construction work pace and operations resume at a manageable level of 60% capacity.

On its property segment, the research house said the group still managed to record a surge in revenue of RM5.1 million in 1Q21 on higher property sales of RM32.9 million which grew by seven-fold, despite the advent of Covid-19 pandemic.

MIDF added that the extension of the Home Ownership Campaign to the end of 2021, as well as the stamp duty exemption limited to houses priced under RM500,000, would impact positively on Gabungan’s property development segment as the campaign bodes well for the group’s ongoing property developments.

Gabungan’s unbilled property sales stood at RM266.3 million as at March 31, 2020.