MARC Ratings has affirmed its ratings of MARC-1IS /AIS on Gabungan AQRS Berhad’s (GBG) RM200 million Islamic Commercial Papers (ICP)/Islamic Medium-Term Notes (IMTN) Programme. The long-term rating outlook is stable. As of end-September 2024, GBG had an outstanding RM53.0 million IMTN and RM74.0 million ICP under the rated programme.
The long-term rating mainly incorporates GBG’s moderate-sized construction order book, its potential to increase its construction order book, and the low counterparty risk given that the majority of its order book comprises mostly government-related construction contracts. The long-term rating is moderated by increased concerns on GBG’s ability to timely replenish its construction order book that currently provides limited earnings visibility, and the impact of delayed contract payments on cash flow. The ratings could come under pressure within the near term if GBG’s business and financial performance weaken further from the lack of contract replenishment and development projects.
GBG’s outstanding construction order book declined to around RM472.2 million as at end-June 2024 (April 2023: RM1.0 billion) with several projects approaching their tail end. The group has been awarded new contracts for government-related projects in recent months, totalling a modest RM177 million. The group has tendered for mostly government-related contracts worth RM1.2 billion which could improve its revenue growth. Counterparty credit risk is deemed low given that the group’s construction projects are largely linked to the government or government-related entities.
In terms of property development, the group has only two ongoing residential projects: E’Island Lake Haven Residence in Puchong, Selangor, with a gross development value (GDV) of RM502 million; and The Peak in Johor Bahru with a GDV of RM689 million. The take-up rate for E’Island stood at a healthy 94% as at end-June 2024 and completion is slated for 4Q2024. However, for The Peak, the take-up rate is low at 40% given that it is a rescued project — having been delayed for more than 10 years — with the remaining construction cost currently being funded by bank borrowings of RM125.0 million. The rating agency understands the total liquidated ascertained damages incurred due to the delay is projected at around RM98.5 million, of which GBG is expected to reduce by at least 30%. Sales for The Peak is expected to be launched by 1Q2025, which MARC Ratings views would benefit from the current strong property demand in Johor Bahru. This would bolster cash inflow in the near term.
For the 12-month period ended December 2023, revenue and pre-tax profit declined by 8.5% y-o-y to RM309.1 million and 10.0% y-o-y to RM20.6 million. The weaker performance is attributed to the slow replenishment of GBG’s construction order book following the completion of major infrastructure projects. For the 18-month period ended June 2024, revenue and pre-tax profit stood at RM431.8 million and RM30.5 million, reflecting the ongoing weakness in its business profile. (The group has changed its financial year end to June 30.)
Total borrowings declined to RM235.3 million as at end-June 2024 (end-2023: RM303.1 million), translating into a gross debt-to-equity ratio of 0.45x. The decline was due to repayment of borrowings following the completion of some projects; borrowings could rise on working capital requirement if the group receives more contracts. MARC Ratings notes that GBG’s sizeable cash position is encumbered and will be released upon completion of projects. This would also support its overall financial position to undertake more projects.