MARC Ratings has affirmed its ratings of MARC-1IS /AIS on Gabungan AQRS Berhad’s (GBG) RM200.0 million Islamic Commercial Papers (ICP)/Islamic Medium-Term Notes (IMTN) Programme. The ratings outlook is stable. The total outstanding balance under the programme stood at RM35.0 million ICP as at end-April 2023.
The long-term rating mainly reflects GBG’s moderate construction order book and low counterparty risk given government-related construction contracts comprise the majority of its order book. This notwithstanding, slow receipt of contract receivables and timely replenishment of its construction order book are key moderating factors.
GBG has built a track record in undertaking government-related construction projects. As at end-April 2023, GBG’s construction order book stood at RM1.0 billion comprising key contracts for Sungai Besi-Ulu Kelang Elevated Expressway, Pusat Pentadbiran Sultan Ahmad Shah, East Coast Rail Link, Light Rail Transit 3 (LRT3) and Gambang Residensi. We continue to view counterparty credit risk as low given the construction projects are largely linked to government and government-related entities. The group’s Gambang Residensi and LRT3 projects — which accounted for about 35% and 12% of GBG’s total order book as at end-2022 — will continue to be key earning contributors.
GBG is also involved in property development and has two ongoing residential projects, namely E’Island Lake Haven Residence in Puchong, Selangor, and The Peak in Johor Bahru city, with gross development values of RM502 million and RM689 million. Take-up rates stood at 90% (E’Island) and 40% (The Peak) as at end-April 2023. Property inventory level remains modest at RM19.0 million as at end-April 2023.
For 1Q2023, revenue grew by 18.8% y-o-y to RM85.2 million. However, pre-tax profit declined by 24.2% y-o-y to RM5.0 million. Going forward, the group’s profitability will be supported by the current order book of over RM1.0 billion as well as unbilled sales of RM353.9 million, mostly from the E’Island project. Total borrowings stood at RM303.1 million as at end-2022, translating to gross and net debt-to-equity (DE) ratios of 0.60x and 0.30x. About RM115.0 million of its borrowings is projected to be fully paid by 1H2024 through revenue generation upon completion of key construction projects which would lower its DE ratio to 0.35x by end-2024. Over the near term, about RM65.0 million is expected to be released from encumbrances following the completion of construction projects which would provide some financial flexibility to meet any working capital needs.