AWC: Arbitration Win Bolsters Cash Position, Earnings Outlook Maintained
| Investment Bank | Malacca Securities |
|---|---|
| TP (Target Price) | RM0.66 (-7.7%) |
| Last Traded | RM0.715 |
| Recommendation |
A subsidiary of a prominent engineering group has secured a significant arbitration award, resolving a long-standing dispute and injecting a substantial sum into its financials. While the immediate impact is positive for the company’s cash flow, analysts maintain a cautious stance on its long-term core earnings trajectory.
Performance Review
Trackwork & Supplies Sdn Bhd, a subsidiary of AWC Berhad, recently announced it was awarded RM2.16 million, plus 5% interest per annum from September 15, 2021, and an additional RM303,920 in costs, from Emrail Sdn Bhd. This award, issued by the Asian International Arbitration Centre (AIAC), effectively concludes a protracted dispute concerning unpaid sums for material supply.
The investment bank views this arbitration outcome favorably, as it facilitates the recovery of outstanding amounts and legal costs, enhancing the group’s cash position. The settlement is anticipated to provide a one-off earnings boost, estimated at approximately RM2.98 million, which will be recognized under the “other income” segment.
Future Outlook
Despite the one-off income injection, analysts are maintaining their core profit after tax (PAT) forecast at RM27.1 million for FY26f. This decision stems from the classification of the arbitration award as a non-recurring item, which will not impact the company’s underlying operational profitability. The report suggests the arbitration win could potentially strengthen FY26 earnings, but this is primarily due to the one-off nature of the gain.
Recommendation
The investment bank reiterates a recommendation for AWC Berhad, with an unchanged target price (TP) of RM0.66. This target price is derived based on a price-to-earnings (P/E) ratio of 10.0x, pegged to mid-FY27f fully-diluted earnings per share (EPS) of 6.58 sen. Based on the last traded price of RM0.715, the target price represents a potential downside of 7.7%.
