Tuesday, January 21

Gabungan AQRS set to benefit from project influx in Sabah, Pahang

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KUCHING: The construction and engineering company, Gabungan AQRS Bhd (Gabungan AQRS) is set to be a main beneficiary of residential, non-residential and infrastructure projects influx in Sabah and Pahang.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the project influx in Pahang and Sabah is mainly driven by the housing spill-over effect of the East-Coast railway Link (ECRL), geotechnical engineering subcontracting jobs in ECRL’s Pahang route, and the Pan Borneo Highway project.

The proposed ECRL project is part of China’s ‘One Belt One Road’ policy which stretches from the Port of Gwadar, Pakistan to supply liquefied natural gas (LNG) to China’s cities in Pearl River Delta, Yellow River Delta and Baohao Rim.

As such, it is expected that housing and infrastructure projects are likely to boom in Pahang’s capital, Kuantan as the city is starting to position itself as a maritime hub in the east coast of Peninsular Malaysia.

“The development of Kuantan is key to capture the spill-over effect such as housing for jobs created for the transport, distribution and supply hub to China’s cities,” the research arm said.

In particular, the Kuantan Township Kota SAS of which Gabungan AQRS is an established developer of, is expected to be one of the major recipients of increased housing demand.

“We foresee that the group will be a likely candidate for participation in construction of infrastructures within Kota SAS’s further expansion due to its expertise and local construction knowledge.

“The move should cement its position as a recipient of further construction largesse within Kuantan and Bandar Indera Mahkota vicinity, especially mixed development and townships,” said the research arm.

Gabunga AQRS’ track record in Kota SAS is also expected to be beneficial for the group in bagging some geotechnical engineering subcontracts from the China Construction Communication Company, recipients of the ECRL contract award.

“We believe that CCCC will seek local construction expertise to manage the key execution risk, especially the challenging soil factor cutting through Pahang’s mountainous toplogy,” the research arm rationalised.

Looking towards Sabah, the group is also poised to be major beneficiaries of the Pan Borneo Highway project’s scope in Sabah as the stretch of 12,000km will require a steady supply of precast materials.

Through its joint-venture vehicle with Sabah Economic Development Corp (SEDCO), the group has the ability to supply the precast materials as its Kota Kinabalu pre-cast plant is current one of the only three large pre-cast plants within Sabah.

“Furthermore, its joint venture with SEDCO enables it to position itself as a frontrunner to bag orders from the Pan Borneo’s project delivery partner.

“We are estimating that the pre-cast supply will contribute circa RM40 million to the group’s bottom line in fiscal year 2018’s estimates (FY18E),” opined the research arm.

While Gabungan AQRS’s orderbook expected to swell in the medium to long-term, there are downsides to this orderbook expansion.

“Orderbook expansion will usually result in sharp increases of risks of cost oberruns, project delays and execution,” explains the research arm.

In order to balance these risk factors with tight construction schedules, the group turns toward a focus on its lateral value chain which involves its property segment and network of close associates such as Syarikat Muhibbah Pembinaan dan Perniagaan (SMPP) and Tanah Makmur Bhd.

“The lateral value chain work effectively to guard against rising pressure of cost overruns by building properties which is developed by its sister divisions.

“In line with its strategy, we expect future financing needs to be reduced by securing milestone payments from progress billings.

“We forecast revenues for AQRS in FYE16 to reach RM330 million from RM272.5 million in 2015, which imputes a portion of the Pusat Pentadbiran Sultan Ahmad Shah project and income from receivables of FY15,” shared the research arm.

Facing the risk of increasing cost of construction, the group’s management has also turned its focus to debt and balance strengthening in order to accommodate to the expected influx of jobs. The group is aiming to reduce its debt to RM121 million or debt-to-equity ratio target to 0.5 fold in FY17-18 from RM400 million and 0.9 fold in FY15.

Additionally, the group is also responding aggressively to preserve its capabilities in obtaining credit and remunerate its sub-contractors by focusing on balance sheet strength.