Sharing note from remisier

$AWC / 7579 (AWC BERHAD)

⭐*AWC (BUY; TP :RM1.41)*⭐
*Opportunities aplenty*

We came away from AWC’s 2QFY25 earnings briefing feeling reassured about the company’s prospects.

🎯 *Strong order wins with plenty of opportunities ahead*

- FY25 YTD order wins stood at a robust RM212.6m, representing 78% of FY24’s total win of RM271m. As of 31st December 2024, the group’s order book remained strong at RM704m, with RM360m from IFM, RM163m from Environment, RM150m from Engineering, and RM66m from Rail.

- Despite this solid order book, tender activities showed no signs of slowing down, with the tender book growing to RM1.3bn.

- Management guided a hit rate of 20% for the said tender book, which is in line with its last year hit rate of c.22%.

💹 *Environment*

- Management continues to see strong growth opportunities in its Steam business, particularly in Malaysia, supported by a strong property market.

- To further grow this market, the group's main initiative is to pitch the automated waste collection system for installation in public healthcare facilities and affordable housing.

- In the Middle East, the company continues to work diligently on potential projects and remains hopeful that some will materialize over the next 6-12 months.

- Overall, for FY25, we expect the Facilities segment to report stronger YoY performance, driven by a higher order book (FY23 end order book: RM132m vs FY24’s RM165m) and the potential for major contract wins in the Middle East market.

🚄 *Rail*

- The strong revenue performance in the Rail segment (+165.1% QoQ; +192.0% YoY) is attributed to the accelerated delivery aimed at clearing the backlog from last year.

- The segment currently has an order book of RM66m to fulfill, and management is optimistic that the strong performance seen in 2Q25 will be sustained, provided there are no further logistics hiccups.

- Additionally, the tender book for this segment has seen a significant increase, rising to RM300m as of 31 Dec 2024, compared to the usual level of around RM70m.

🏢 *IFM’s performance to be cushioned by newer jobs*

- With three newly secured IFM jobs set to fully contribute in the upcoming quarters, they are expected to help offset the additional RM1.7m in annual costs arising from the minimum wage hike revision effective February 2025.

- Overall, the group remains focused on managing the cost pressures faced by its older IFM projects *and is hopeful to stay in the black for the coming two quarters.*

🛠️ *Engineering*

- The tender book for this segment remains strong at RM500m, with approximately RM100m derived from DC projects, while the remainder is split between the residential and commercial property markets in Malaysia and Singapore.

- With a robust order book of RM150m, we expect the segment’s performance to strengthen in 2HFY25, driven by an increased contribution from DC projects.

- Additionally, management has indicated potential contract wins in the coming months, particularly within the healthcare and DC sectors.

💰 *Forecast.* Unchanged.

⭐ *Maintain BUY with an unchanged TP of RM1.41,* based on 14x CY25 EPS.

- 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.