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Tuesday, November 29, 2016

CIMB Research retains Add for AWC, target price RM1.29

Tuesday, 29 November 2016 | MYT 8:33 AM

KUALA LUMPUR: CIMB Equities Research is maintaining its Add call for AWC Bhd with an unchanged sum-of-parts based target price of RM1.29 after its strong financial performance.

AWC’s revenue for the first quarter ended Sept 30, 2016 (Q1, FY17) rose 67% on-year driven by across-the-board improvements (engineering +212%, environment +82%, and facilities +31%).

AWC’s three main core activities are integrated facilities management (IFM); environment (solid waste management) and engineering services (plumbing and rainwater harvesting).

The research house said the strong revenue was due to AWC recognition of the full impact of the concession rate increase, STREAM progress billings and consolidation of QDT’s acquisition.

“Pretax margins at environment outperformed on a RM1.8mil writeback for provision of doubtful debts in STREAM, mitigated by weak facilities margins due to certain cost recognitions not imputed in the previous financial year, which are one-off.

“Net cash/share strengthened on-quarter from 17 sen to 26 sen. No interim DPS was declared, as expected, but final DPS for FY16 of 1 sen will trade ex-dividend on Dec 14 2016 and paid on Jan 10, 2017,” it said.

CIMB Research pointed out AWC has an estimated outstanding orderbook of RM500mil up till FY18, comprising facilities (RM260mil), 2) STREAM (RM110mil), 3) M&E/HVAC (RM60mil), and 4) plumbing (RM80mil).

“We believe that contract wins in STREAM and Plumbing, given their high margins, could be re-rating catalysts, as they would sustain earnings visibility in FY17-18F.

“Given the slew of high-rise office buildings coming up in the Klang Valley, we believe that private sector facilities maintenance contracts are also in the pipeline,” it said.

The research house also said STREAM’s outstanding orderbook stood at RM110mil in October 2016. In FY16, STREAM’s revenue split was about 50% from Malaysia and the balance shared equally between the Middle East and Singapore.

“We gather that Al Raha has about 50 projects in the pipeline, with about 40% to be possibly awarded in the next one year. At an average of RM2mil per project, Al Raha could potentially secure up to RM40mil in new orders. Our forecasts are based on new contract wins for STREAM at RM25mil to RM30mil per year,” it said.

AWC, it said, is still under-owned at only 2% institutional shareholding. Potential catalysts are high profile contract wins and special dividends.

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