1QFY26 CNP came in at RM4.3m (-6.7% QoQ, -29.9% YoY), representing 12.5% of our full-year forecast and 16.1% of consensus. The results missed expectations, mainly due to slower-than-expected recovery in the Facilities segment.
We cut our FY26F-FY28F earnings forecasts by 18.1-22.2%, reflecting more conservative margin assumptions for government-related contracts under the Facilities segment.
Outstanding order book is estimated at RM787.8m, equivalent to 1.9x FY25 revenue.
Maintain BUY with a revised TP of RM0.72 (from RM0.92), based on 9x FY26F EPS of 8.0 sen and supported by a three-star ESG rating.
Missed expectations. After adjusting for Eis (+RM0.2m), AWC’s 1QFY26 core net profit (CNP) came in at RM4.3m (-6.7% QoQ, -29.9% YoY). This represents 12.5% of our full-year forecast and 16.1% of consensus estimate. The shortfall was primarily attributable to a slower-than-expected recovery in the Facilities segment.
QoQ. CNP slipped 6.7% mainly due to weaker contribution from the Environment division (segmental PBT -61.1%), as most projects in Malaysia and Singapore remain in the early phases of the S-curve with thinner margins. The Facilities division also remained muted due to the continuing drag from lower profitability on ongoing government contracts. The earnings weakness was partially offset by stronger growth in the Rail division (segmental PBT +434.3%) driven by a better product mix, while the Engineering division (segmental PBT +69%) benefited from higher revenue recognition with premium margins from ongoing Plumbing projects.
YoY. CNP contracted 29.9% mainly due to the absence of contribution from AWCS projects in the UAE and slower progress on projects that are still in the early phases under the Environment segment. This was reflected in PBT margins falling to 8.7% compared to 24.7% in 1QFY25. The other factors highlighted in the QoQ discussion also continued to weigh on overall performance.
Outlook. We expect earnings to gradually increase in the coming quarters, driven mainly by RM187.7m of AWCS projects in Malaysia and Singapore progressing into the accelerated S-curve phase under the Environment segment. Engineering should sustain robust performance, supported by RM83.6m in outstanding jobs and continued demand for data-centre-related plumbing works. Rail contribution is expected to remain stable, backed by active progress on projects within its RM43.3m order book. Meanwhile, the Facilities division is expected to recover from 1QCY26 onwards following the one-year extension at revised rates, which should further support the Group’s earnings trajectory.
Order book. The Group’s outstanding order book is estimated at RM787.8m (60.1% Facilities; 23.8% Environment; 10.6% Engineering; remainder from Rail), representing 1.9x FY25 revenue.
Earnings Revision. We have lowered the margin assumptions for the Facilities division, adopting a more conservative view on government-related contracts. As a result, earnings are revised by -21.7%/-22.2%/-18.1% for FY26F-FY28F.
Valuation. Following the earnings adjustment, we derive a new TP of RM0.72 (from RM0.92), based on 9x FY26F EPS of 8.0 sen and supported by a three-star ESG rating. Maintain BUY. 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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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.116196 | 4.147085 |
| EUR | 4.779011 | 4.786244 |
| CNY | 0.583313 | 0.583620 |
| HKD | 0.529202 | 0.533225 |
| SGD | 3.170028 | 3.194008 |