Winds of change at Gabungan AQRS
MAY 07, 2016, The Star
Mid-sized developer draws attention with new CEO, big contract win
THE latest contract award given to Gabungan AQRS Bhd has put the low-profile construction and property mid-cap stock in the limelight. The award amount of RM424.23mil is larger than the company’s current market capitalisation of RM370.96mil.
The contact win followed another significant development earlier in the week, namely, the ascension of executive director Datuk Azizan Jaafar to chief executive officer (CEO).
News of this rubbed off on investors, with its shares climbing some 13% in the week to hit the RM1 mark on Thursday. On Friday, the stock softened by 5% to close at 95 sen.
Shares of the Pahang-based company have not surpassed the RM1 level since early August last year.
The company made its debut four years ago with an initial public offer of RM1.18 and had touched a high of RM1.86 in September 2014.
In an email reply to questions from StarBizWeek, Azizan says: “My role is to ensure that the company is able to secure and execute impactful projects, both for our property development and construction divisions.
“This is a challenging time for the property market ... so the company needs to embark on projects which cater to the market’s needs, which we are focusing on.”
Azizan is one of Gabungan AQRS’ major shareholders with a 12.56% stake, held through his private vehicle Ganjaran Gembira Sdn Bhd.
He takes over from Ng Chun Kooi, who has been designated as executive vice-chairman of the company.
For the last few months, investor sentiment on the stock has been subdued, as the company waded through what it described as “unexpected complications” with two of its ongoing projects in the third quarter of financial year 2015 (FY15).
It had, for one, encountered issues with the piling works for the construction works for its Tropicana Metropark-Paloma project and had to fully provide for the losses as a safety measure. In the same quarter, it terminated an acquisition of a piece of industrial land located at Sungai Lalang in Semenyih because of a breach of obligations by the vendor.
In the following quarter, it had to make a write-down of the property revenue and earnings recognised in the past due to sales cancellations when some buyers failed to secure mortgages after putting a downpayment for its properties.
As a result, the company reported a net loss of RM9,9mil for FY15 from a net profit of RM52.9mil previously.
But Azizan says the company is getting back on track.
“The latest win shows that we are serious about building our construction division, which already showed some notable growth in the last quarter. We are in the midst of negotiating more such deals, while at the same time, focusing on executing our current construction jobs well.”
The company’s orderbook now stands at RM1.4bil. “We are confident that we will be able to secure another RM1.3bil to RM1.6bil of construction projects in the next 12 months.
“For our property division, our current unbilled sales stands at RM741mil, which means contribution to revenue in the coming months.”
Gabungan AQRS’ latest project announced on Thursday saw the company buying a 49% stake in Monolight IBS Building System Sdn Bhd, which is the turnkey contractor for a PR1MA housing project in Kuantan, Pahang. Monolight will hold the remaining 51%.
The PR1MA housing project sits on a 182,000-square-metre tract in Kuala Kuantan. Earthworks is expected to begin in about seven weeks and the whole project has a 36-month deadline for completion.
According to the company, earnings from the project will kick in in the coming FY16.
Going by this, it should be returning to profitability this year, says one analyst.
Construction is currently the company’s main revenue earner, with profit margins of around 10% to 15%.
The other construction works in the pipeline is the new Pahang state government administration centre project at the Kota Sultan Ahmad Shah (KotaSAS) township in Indera Mahkota, where it is the main contractor.
Gabungan AQRS has a 30% stake in the joint-venture (JV) company to develop the new complex that is potentially worth RM400mil.
Moving forward, it is also seeking to secure more jobs from the new lines of the mass rapid transit (MRT) project after having participated in the Klang Valley MRT Line 1/
As for property, Azizan expects things to improve.
He shares that the company’s Permas Centro project in Johor Baru has seen encouraging sales of its “Bumi release” units that were put in the market at the end of February.
In addition, it also owns 2.67 acres of prime land in Damansara Perdana, Selangor, which is located directly opposite the Empire City Damansara.
“The term loan taken to finance this land has been fully paid up and it is now free from encumbrances.
“We are now waiting for the right moment to launch our project in this area, which will further enhance our branding and presence in this fast-growing suburb.”
Gabungan AQRS’ other property projects is The Peak - a serviced apartment project in Iskandar Malaysia in Johor Baru that has a value of RM251.99mil and is half complete.
Its largest property project to date is One Jesselton Waterfront in Kota Kinabalu Sabah - a JV with Suria Capital Holdings Bhd that carries a net sales value of RM1.8bil.
The company expects demand for One Jesselton Waterfront to be good, as the new buildings will be better able to withstand seismic shocks compared with older ones.
According to the company, the project will move forward in the coming year with the land title to be issued in the second half of 2016.
Market analysts say that Gabungan AQRS has also been working to degear to strengthen its financial footing.
Recall that in early April, a subsidiary of the company sold a 3.228-ha leasehold land in Selangor for RM50.38mil to raise funds for working capital and repayment of bank borrowings.
Gearing as at end-December stood at 0.44 times, up from 0.27 times a year ago.
As at that period, it had RM293.88mil in borrowings, while cash and bank balances stood at RM42.38mil.
Meanwhile, the 48-year-old Azizan is said to be well-connected, which, in turn, could lead to more projects coming to the company, say some market observers.
“The fact that he has raised his stake from 8.45% two years ago also shows his commitment to the company,” they say.
For those not in the know, Azizan is a director and shareholder of Tanah Makmur KotaSAS Sdn Bhd, a subsidiary of Tanah Makmur Bhd, whose major shareholder is the Tengku Mahkota of Pahang, Tengku Abdullah Sultan Ahmad Shah.
Tengku Abdullah is in the midst of taking Tanah Makmur private.
KotaSAS is the maiden township development of Tanah Makmur KotaSAS, where the Pahang state government administration centre project will be located.
The other major shareholder in Gabungan AQRS is Ow Chee Cheoon with an 8.4% interest. In the management changes this week, Ow was appointed as the deputy CEO of the company. Ow is also a shareholder in the privately-held Ganjaran Gembira.