Summary

• AME Elite Consortium Bhd's 1QFY22 net profit expanded 35.5% YoY to RM7.2m, mainly boosted by higher contributions from construction and property investment and management services segments. Revenue for the quarter rose 40.2% YoY to RM76.8m.
   
• The reported earnings only accounted to 10.6% of our estimates at RM68.0m and 13.1% of consensus forecast of RM55.1m. The weaker-than-expected results was mainly attributable to implementation of Full Movement Control Order (FMCO) in June 2021 that resulted in lower-than-expected property development recognitions, coupled with delay in projects completion.
   
• In 1QFY22, only the property development segment underperformed with EBIT slumping 83.1% YoY to RM0.4m, dragged down by the lower bed capacity in workers dormitories in adhering to the social distancing due to Covid-19 pandemic. Still, the overall group EBIT jumped 97.7% YoY to RM11.9m, lifted by the construction, engineering and property investment and management services segments.
   
• Moving forward, AME is equipped with an unbilled construction orderbook of approximately RM148.4m, representing orderbook-to-cover ratio at 0.8x against FY21 construction revenue of RM184.7m that will provide earnings visibility over the next 12 months. Given the relatively quiet period for the construction segment due to the Covid-19 pandemic, we have revised a lower orderbook replenishment rate of RM200.0m (from RM300.0m) for the construction segment in FY22f.
   
• We believe that foreign direct investment (FDI) in 2021 is sustainable, particularly from the electrical and electronics (E&E) sector. Already, Malaysia recorded a total of RM17.30bn (+111.0% YoY) worth of FDI in 1H21. This bodes well for AME’s plan to launch a new integrated industrial park with a GDV of RM1.50bn.
   
• Unbilled sales at RM110.0m will recognised progressively in subsequently quarter, while we reckon that take-up rate for i-Park industrial properties may continue face complexity from the prolonged lockdown, particularly from foreign investors.

Valuation & Recommendation

• With the reported earnings coming below our forecast, we tweak our earnings estimates lower by 16.9% and 8.7% to RM57.0m and RM69.8m for FY22f and FY23f respectively, in reflection of the impact from the implementation of FMCO. Consequently, we downgrade AME to SELL (from HOLD) with a lower target price of RM2.41 (from RM2.57).
   
• Our target price is derived by ascribing a target PER of 18.0x to its FY22f EPS of 13.3 sen. The assigned PER is slightly above the small-mid cap construction peers trading at 13.0-15.0x, premised to AME’s position as a niche construction player, specialising in the industrial REIT space.
   
• Risks to our recommendation and target price include dependency on the foreign direct investment in Malaysia. Stronger-than-expected orderbook replenishment or higher-than-expected industrial property sales may improve the prospect of earnings recovery.

Source: Mplus Research - 27 Aug 2021