AWC Berhad - Earnings Miss on Environment
Tue, 24-Feb-2026 08:44 am
by Team Coverage • Apex Research

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AWC (7579)

Target Price (RM)

0.60

Recommendation

Hold

  • AWC’S 2QFY26 CNP declined 2.3% qoq and 21.7% yoy to RM4.2m, bringing 6MFY26 CNP to RM8.6m (-26.1% yoy), representing 31.6% of our full-year forecast and 32.4% of consensus. The results missed expectations, mainly due to slower-than-expected recovery in the Environment segment.

  • The Group declared an interim dividend of 0.5 sen in 2QFY26 (2QFY25: 0.75sen), bringing 1HFY26 DPS to 0.5 sen (1HFY25: 0.75 sen).

  • We cut our FY26F-FY28F earnings forecasts by 17.1-15.5% reflecting more conservative margin assumptions for Rail and sustained softness in Middle East Environment Revenue.

Outstanding order book is estimated at RM909m, equivalent to 2.2x FY25 revenue.

  • Downgrade to HOLD with a revised TP of RM0.60 (from RM0.72), based on 9x FY26F EPS of 6.6 sen and supported by a three-star ESG rating.

 

Missed expectations. After adjusting for EIs (+RM0.2m), AWC’s 2QFY26 core net profit (CNP) came in at RM6.2m (-2.3% QoQ, -21.7% YoY). This brings our 6MFY26 CNP to RM8.6m representing 31.6% of our full-year forecast and 32.4% of consensus estimate. The shortfall was primarily due to the prolonged softness in the Middle East market for the Environment division and a less favourable margin mix in the Rail division.

 

Interim Dividend Declared. The Group proposed an interim dividend of 0.5 sen per share in 2QFY26, bringing 1HFY26 DPS to 0.5 sen (1HFY25: 0.75 sen).

 

Material Litigation. Trackwork & Supplies Sdn. Bhd. (AWC’s subsidiary) successfully secured a final arbitral award of RM2.16m plus 5% interest and RM0.3m in costs against Emrail Sdn. Bhd, for outstanding payments related to track restoration projects. Despite the dismissal of the respondent's jurisdictional objections, Emrail has since filed a High Court summons to set aside the award. While a successful recovery would strengthen liquidity, the potential impact remains deferred as the Group challenges the setting-aside application in court. 

 

QoQ. CNP was relatively stable (-2.3%) as the Rail division saw a 67.5% decline in segmental PBT to RM0.3m, dragged down by lower project deliverables and a less favourable margin mix (20.6% vs 26.0% in 1QFY26). This was largely offset by a 154.3% surge in Facilities PBT to RM1.0m, driven by a 15.5% revenue increase from the healthcare segment. The Environment division’s PBT improved 20.7% to RM3.9m as projects progressed despite stable revenue, while Engineering PBT rose 20.4% on higher HVAC project progress.

 

YoY. CNP contracted 21.7% from RM5.4m in 2QFY25, mainly due to (i) the sustained softness of contribution from AWCS projects in Abu Dhabi and Dubai amid slower progress on projects that are still in the early phases under the Environment Division, (ii) slump in Rail revenue (-63.8%) arising from lower order fulfilment. These declines were partially mitigated by the Engineering division, where PBT jumped 143.9% YoY to RM2.6m on the back of robust project progress in HVAC deliverables.

 

Outlook. We expect a significant earnings inflection point in 2HFY26 as revenue recognition from recently secured projects gains momentum, positioning the Group favourably for FY27. The Facilities division remains a bright spot following its concession extension at higher revised market rates and strategic expansion into high-technology FM. While the Middle East remains soft, the Environment segment's record-high RM224m order book and accelerating regulatory demand in Singapore provide a robust earnings floor. This is further bolstered by the Engineering division’s order book growth as the plumbing segment continues to secure more high-value contracts. In addition, the Rail division’s pivot toward stable, service-based recurring income and an increase of approximately 1.5x in order book QoQ to RM106m, collectively underpinned by a strengthened Group order book of RM909m makes the growth outlook cautiously optimistic.

 

Orderbook. The Group’s outstanding orderbook reached RM909m, marking a robust 15% QoQ growth. This backlog represents 2.2x FY25 revenue, providing a solid earnings visibility. The portfolio is led by Facilities (52.9%), followed by Environment (25.5%) and Engineering (9.6%), with the remaining balance attributed to the Rail segment.

 

Earnings Revision. Following a change in analyst, we have reassessed the Group's near-term operational trajectory and have lowered our earnings forecasts for FY26F-FY28F by –17.1%, -16.4%, and –15.5% respectively. This revision accounts for more conservative margin estimates within the Rail division to reflect the current lower-margin product mix and lower order fulfilment. Additionally, the adjustment also reflects the short-term revenue decline in the Middle East environmental market, where project progress remains soft.

 

Valuation.  We downgrade our recommendation to HOLD with a revised TP of RM0.60 (from RM0.72) , based on 9x FY26F EPS of 6.6 sen with a three-star ESG rating. As a leading player in the automated waste collection market, AWC holds a dominant 90% market share in Malaysia and 40% in Singapore. The Group remains a defensive choice, underpinned by predictable cash flows from long-term concessions and an enlarged order book of RM909 million that provides clear earnings visibility. Despite the near-term headwinds in the Middle East, the Group offers stability through its diversified segments and an attractive dividend yield.

 

Risks. Failure to secure improved rates for government concession contracts under the IFM segment, continued softness in the Middle East affecting the Environment Division contributions, and failure to maintain margin resilience and lower orderbook replenishment in the Rail segment following recent declines in product mix profitability.

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