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Saturday, January 25, 2014

Gabungan AQRS picky on jobs


THE start of the year is always an interesting time to scour the market for interesting gems. One company that fits the bill is construction and niche property player Gabungan AQRS Bhd.
Gabungan is considered a relatively new player in corporate Malaysia; it was listed in July 2012 at a price of RM1.18, with a valuation of 8.4 times based on its 2011 earnings. Today, the stock price is trading below its initial public offering price at RM1.08 with a valuation of 9.56 times.
Now, market cap-wise, it is sitting right smack in the middle of the pack with RM383.7mil. It is bigger than players such as TRC Synergy BhdCrest Builder Bhdand Kimlun Corp Bhd, but a lot smaller than players like IJM Corp BhdGamuda Bhdand WCT Bhd.
As it stands, Gabungan’s statistics look quite promising. It has been growing at a compounded rate of 15% over the last five years. It has an order book of RM1.4bil, where some RM781mil is unbilled. Gabungan is currently tendering for RM1.5bil worth of jobs.
It has completed jobs such as the Lebuhraya Damansara Puchong extension for RM277mil and the Seremban-Senawang federal road for RM110mil. Ongoing jobs include construction works for the Klang Valley Mass Rapid Transit worth RM303.5mil. This job entails the construction and completion of the viaduct guideway and other associated works for the rail project from Sg Buloh to Kota Damansara.
Just last month, it bagged its latest contract – the construction of two blocks of 28-storey service apartments for RM172.99mil from Tropicana Metropark Sdn Bhd. Hence, the momentum for Gabungan has been quite good.
Historically, Gabungan enjoys relatively high gross profit margins of 16% to 28% in its construction business. This is due largely to its experienced management team and their shrewdness in selecting projects.
Chief executive officer Alvin Ng, who is also the founder and single largest shareholder (18.24%), says Gabungan is picky when it comes to bidding for jobs.
“We don’t bid for a job knowing the margin isn’t good. The fact that we have a property division also allows us to be picky. Property earnings ‘smoothen’ the company’s earnings as a whole and allows us to choose jobs for the construction division,” says Ng.
The ambitious and impatient Ng is certainly not satisfied with Gabungan being classified as a mid-cap company. He wants the company to become a billion-dollar entity in the not-so-distant future.
“For 2014, of course, we are looking to repeat our growth patterns of the past. However, for our construction tender book, we are now tendering for more public private partnership (PPP) and privatisation jobs. We want to solidify the company with recurring income with the PPP jobs,” said Ng.
Besides this, it is an open secret that Gabungan is close to clinching a “substantial portion” of the new Pahang administration complex project in Kota SAS, Kuantan, valued at RM400mil. Gabungan’s portion is said to be worth RM250mil.
This is perhaps not surprising, as on Sept 4, Gabungan had announced that it had subscribed for a 30% stake in a special-purpose vehicle (SPV) – Kreatif Sinar Gabungan Sdn Bhd.
The purpose of this SPV is to undertake the construction of the proposed administrative building in Pahang. The other shareholders are Kreatif Selaras Sdn Bhd, with a 65% stake, and Sinar Realiti Sdn Bhd, with 5%.
“We are also looking to strengthen our mechanical and engineering (M&E) segment and are on the lookout to acquire such a company. By having an M&E division, we can save significant cost and further improve our margins,” says Ng.
He says Gabungan is in talks with a few parties for a possible merger and acquisition exercise to set up an M&E division. At the moment, it outsources its M&E works to sub-contractors.
Gabungan’s property division has been beefed up since it first started in 2004. More recently, it reported a good take-up rate for its recently launched development – The Peak in Johor Baru. The RM557mil condominium development is now 36% sold.
“People see Gabungan as a construction player and not so much as a property player. Sure, we started as a construction company, and it is contributing some 70% to our bottom line. However, moving forward, the contribution from the property division will increase, especially with the sales we had locked in last year. We are encouraged by the take-up rates for our developments. We are also continuously looking for pockets of land in the Klang Valley and the southern region,” he adds.
To date, the group’s main property projects are The Peak, Contours in Ulu Klang, The Avenue @ Kinrara and Gombak Grove @ Setapak. These projects boast some RM440mil in gross development value (GDV) and will keep the company busy over the next three years.
Ng says Gabungan will be launching two developments in the second half of 2014 – a 682-unit apartment project in Kinrara with a RM330mil GDV and West Lake apartments in Puchong, with a GDV of RM645mil. It will have 1,142 units.
“Yes, the property market does appear more subdued with the cooling measures announced by the Government. However, I also think that there has been some over reaction. Certainly, the first group of players to be taken out from the property equation are the speculators. But there is real demand when it comes to affordable houses. That is our strategy. That is why we will be launching properties below RM500,000,” explains Ng.
For the third quarter to Sept 30, 2013, Gabungan’s net profit was up 59.78% to RM6.29mil on the back of a 4.53% drop in revenue to RM105.46mil.
The construction division contributed some 70.91% of the current quarter’s revenue.
For the nine-month period, net profit was up 98.25% to RM36.91mil on the back of a 14.91% increase in revenue to RM292.19mil.
RHB Research says the core nine-month profit was up 17% to RM21.9mil, excluding the RM15.1mil in land disposal gains. Lower margins were booked by both its construction and property divisions due to rising cost pressures.

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