AWC Berhad - Missed expectations
Thu, 28-Aug-2025 09:43 am
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AWC (7579)

Target Price (RM)

0.78

Recommendation

Buy

  • AWC’s 4QFY25 CNP stood at RM4.7m (-1.0% QoQ, -33.3% YoY), bringing 12MFY25 CNP to RM21.0m (+48.1% YoY), representing 94.4% of our full-year forecast and 88.4% of consensus. While the result has slightly missed expectations, we make no changes to our earnings forecasts as we believe view the 4Q blip in the Rail segment to be one-off, as the rail projects are entering the accelerated phase of S-curve revenue recognition.

  • 1QFY26 earnings are expected to improve, driven by stronger contributions from Engineering, supported by RM109m in outstanding jobs and robust DC-related plumbing demand, and Rail, backed by a healthy order book of RM50.8m and progressing into the accelerated growth phase of the S-curve.

  • Maintain BUY recommendation with an unchanged target price of RM0.78, based on 8x FY26F EPS of 9.7 sen and supported by a three-star ESG rating.

     

    Missed expectations. After adjusting for the reversal of impairment on receivables (-RM2.2m) and other adjustments (+RM0.2m), AWC’s 4QFY25 core net profit (CNP) came in at RM4.7m (-1.0% QoQ, -33.3% YoY), bringing FY25 CNP to RM21.0m (+48.1% YoY). This represents 94.4% of our full-year forecast and 88.4% of consensus estimate. The shortfall was primarily due to slower-than-expected revenue recognition in the Rail segment. 

     

    QoQ. CNP slipped 1.0% to RM4.7m despite a 5.9% rise in revenue to RM104.4m. The muted earnings reflected flattish PBT at RM7.7m, as stronger contributions from Facilities (PBT +86.0%) were offset by weaker profitability in Rail (revenue +9.3% but PBT -49.1%), where new project rollouts saw initial billings at thinner margins. Environment also softened (PBT -9.7%) due to slower project execution in Abu Dhabi and Singapore. Core PATMI margin contracted 0.3%-ppt to 4.5%, reflecting margin compression in Rail projects completed during the quarter.

     

    YoY. CNP contracted 33.3%, weighed down by weaker Rail, Environment, and Facilities contribution. Rail PBT plunged 73.0% as the current project phase carried thinner margins versus last year’s peak (PBT margin 4.0% vs. 39.3% in 4QFY24). Meanwhile, Environment PBT declined 34.1% on slower progress in Abu Dhabi and Singapore.Facilities PBT also weakened sharply by 73.0% on higher operating costs that eroded margins.

     

    Outlook. Earnings are expected to pick up next quarter, largely driven by Engineering and Rail. Engineering should sustain robust performance, supported by RM109m in outstanding jobs, value-engineering initiatives to mitigate cost pressures, and incremental demand from DC-related plumbing works. Rail contribution is also expected to strengthen, driven by a healthy order book of RM50.8m and accelerated recognition as projects progress into the S-curve phase. Conversely, Environment is expected to remain subdued as reciprocal tariffs may delay project rollouts in the Middle East (typically account for 30-40% of the segment’s PBT). Facilities are expected to stay soft through 2HCY25 until the upcoming concession re-tender provides scope for rate upside.

     

    Order book. As of 30 June 2025, the Group’s outstanding order book stood at RM597m (45.3% from Facilities, 29.9% from Environment, 16.3% from Engineering, and the remainder from Rail), representing 1.4x of FY25 revenue.

     

    Earnings Revision. We maintain our FY26F and FY27F earnings forecasts, as the 4QFY25 earnings blip is viewed as one-off, with Rail projects poised to enter the accelerated phase of S-curve recognition from FY26. We also introduce our FY28F CNP forecast at RM39.4m.

     

    Valuation. We maintain our BUY recommendation with an unchanged TP of RM0.78, based on 8x FY26F EPS of 9.7 sen and supported by a three-star ESG rating. We like AWC for its (i) leading AWS system market share (90% in Malaysia, 40% in Singapore), (ii) predictable cash flows from both concessionaire and non-concessionaire segments, and (iii) promising growth prospects from untapped projects in Abu Dhabi, which collectively represent a potential RM1bn order book.

     

    Risks. Failure to secure improved rates for government concession contracts under the IFM segment, slower-than-expected order replenishment in the Environment segment, and potential delays in mega infrastructure projects that could weigh on Rail segment prospects.

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