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AWC (Initiation; BUY TP: RM1.41)⭐

We initiate coverage on AWC with a BUY rating at a TP of RM1.41. Anchored by four main pillars, we reckon AWC is entering into a new earnings upcycle. We project AWC’s FY25/26/27 core net profit to grow by 88%/31%/20%, implying a respectable 3-year CAGR of 44.0%.

Key Highlights_

🏠 Environment STREAM, which commands c.90% market share in Malaysia, is well-placed to benefit from the country’s stronger property market outlook and anticipated rise in new launches, as well as Singapore’s robust pipeline of residential, office, and HDB developments. Meanwhile, in the Middle East, the region's booming infrastructure sector presents ample opportunities for AWC to secure additional contracts.

🛠️ Engineering: Similar to its Environment segment, the expected growth in both Malaysia and Singapore property markets are seen to benefit AWC’s Engineering pillar. Separately, with its plumbing segment recently securing a prestigious MNC DC project, AWC is well positioned to ride the DC wave in Malaysia. Based on our estimates, the 4.7GW DC pipeline translates into an opportunity worth RM1.6–2.9bn for the plumbing sector.

🏢 IFM: With the bulk of AWC’s concession and non-concession contracts are set to expire in CY25–26, the renewal of these contracts are seen to significantly drive the profitability of its IFM segment, which has been eroded by cost escalation over the past three years.

🚄 Rail the Rail segment is poised to secure a portion of the upcoming systems contract for Penang LRT, where management expects it to be valued at c.RM400m. Separately, the potential MRT3 and HSR project rollouts offer AWC strong opportunities to tap into in the future.

⭐ Initiate with BUY at a TP of RM1.41 , based on 14x CY25 P/E; this represents 15% discount to the pure-play property sector's 16.5x.

We find this valuation method fair since c.70% of AWC’s profit is driven by the Environmental segment, where contract flows are closely linked to the property space.

Overall, we believe the stock is poised to enter a new earnings upcycle, led by its Environment and Engineering segments in FY25f-26f, with further contributions from IFM and Rail expected from FY27f onwards.