KUALA LUMPUR (Feb 4): Engineering firm AWC Bhd (KL:AWC) is expected to see strong earnings growth in the next three years, amid a strong property market and impending contract renewals for its rail and integrated facilities management segments, said HLIB Research.
In a research report on Tuesday, HLIB initiated a 'buy' call on AWC, with a target price of RM1.41, based on calendar year ending Dec 31, 2025 price-earnings ratio of 14 times, which is lower than the pure-play property sector average of 16.5 times.
The house projected annual core net profit growth of 88% for the financial year ending June 30, 2025 (FY2025), 31% for FY2026, and 20% for FY2027, implying a three-year compound annual growth rate of 44%.
"This comes from: i) a stronger performance of the environment, engineering, and rail segments; ii) margin expansion from a more favourable revenue mix; and iii) the renewal of its major IFM (integrated facility management) concession in FY2027," the research house said.
AWC’s environment segment stemmed from 100%-owned automated waste collection system firm Stream Group Sdn Bhd, which HLIB said holds an estimated 90% market share in Malaysia, aside from having presence in parts of the region and the Middle East.
The engineering segment specialises in plumbing and rainwater harvesting; building automation and management systems; heating, ventilation and air conditioning; power distribution systems; and firefighting services.
“Separately, with its plumbing segment recently securing a prestigious multinational company data centre project, AWC is well positioned to ride the data centre wave in Malaysia,” HLIB said, likely referring to the RM19.9 million subcontract from Gamuda Engineering Sdn Bhd for the construction and completion of cold water, rainwater harvesting, water reticulation, fire hydrant, foul water, and sewerage services for a data centre in Rawang.
The target contract replenishment of RM90 million for the engineering segment “exceeds the previous trend of RM70 million to RM80 million, reflecting anticipated contributions from: i) the data centre pipeline; and ii) the growing number of property launches in Malaysia and Singapore".
For the IFM segment, the contract renewal is notable, as the segment’s profitability had been eroded by cost escalation in the past three years.
“Meanwhile, the rail segment is poised to secure a portion of the upcoming systems contract for the Penang LRT, where the management expects it to be valued at about RM400 million,” the research house said.
Both the IFM and rail segments are “poised for strong earnings growth in FY2027, following the renewal of the existing contract and the Penang LRT,” the house said.
At the time of writing on Tuesday, shares of AWC were up one sen or 0.97% at RM1.04, giving the group a market capitalisation of RM356.13 million. The counter is up 14% this year.