Gabungan AQRS loses out on Selangor state affordable housing deal

Gabungan AQRS Bhd (Sept 19, 98 sen)

Maintain buy with lower target price (TP) of RM1.30: We understand that Gabungan AQRS Bhd (GAQRS) has lost out on a deal with the Selangor state government (SSG) to build affordable housing in the state. We cut our earnings per share (EPS) forecasts by 7%-12% for financial years 2017 and 2018 (FY17-FY18E) and reduce our revalued net asset value (RNAV)-based TP by 6% to RM1.30 from RM1.38 to remove the contribution from this potential project. GAQRS is still on track to secure the potential RM320 million Pahang administration centre project, which is in our earnings forecasts.

LBS Bina Group announced that its subsidiary Kemudi Ehsan Sdn Bhd (KESB) and Worldwide Property Management Sdn Bhd, an indirect subsidiary of state-owned Perbadanan Kemajuan Negeri Selangor, had entered into a development rights agreement with SSG to develop 10 parcels of leasehold land in Ijok. KESB will develop affordable housing on five of these parcels, measuring 470 acres (190ha) with an estimated gross development value (GDV) of RM1.83 billion over 12 years. KESB will pay RM293 million to SSG for the land parcels over the development period.

We understand that GAQRS was negotiating for the KESB-Worldwide project but lost out on the deal. We understand that KESB won as it was willing to pay a higher upfront payment for the land compared to GAQRS. But we gather that GAQRS is still negotiating for another potential affordable housing project in a different location.

We also remove the potential project contribution from our RNAV per share, which falls to RM1.44 from RM1.54. Based on the same 10% discount to RNAV, we cut out TP to RM1.30 from RM1.38.

The correction in the share price provides an opportunity to accumulate the stock. Potential catalysts for upward rerating are clinching the potential RM320 million Pahang project and receiving final approval for its One Jesselton mixed development project with a GDV of RM1.8 billion. Key risk to our call is further delays in finalising these two potential projects. — Affin Hwang Investment Bank, 19 Sept

Not sure how much you will have to pay a month for your home? Check out our mortgage calculator here.

This article first appeared in The Edge Financial Daily, on Sept 20, 2016. Subscribe to The Edge Financial Daily here.