Summary

• AME Elite Consortium Bhd’s (AME) indirectly wholly-owned subsidiary AME Construction Sdn Bhd has accepted the letter of award from Ye Chiu Non-Ferrous Metal (M) Sdn Bhd for the construction and completion of (i) 3 blocks of single storey factory/ warehouse, 1 unit of 5-storey office block, 1 unit of single-storey logistic office and other ancillary buildings and (ii) 1 block of single-storey factory/ warehouse together with a 2-storey utility room and a 2-storey mechanical and electrical room, 1 unit of 2-storey office and other ancillary buildings.

• Both the contracts are adjoining to each other located at Johor and carries a collective built-up area of approximately 2.6m sqf. The contract valued at RM359.0m will commence on 3rd November 2021 and to be completed over 18 months by 2nd May 2023.

• We gather that the abovementioned contract is the largest single value construction project that was secured by AME since incorporation. The win is a testament of AME’s strength and capability to undertake larger scale projects within the construction space. We believe that the industrial space activities will improve over the longer run, premised to the improvements in the foreign direct investments (FDI) and domestic direct investments (DDI) which has already demonstrated 223.1% YoY jump to RM107.5bn in approvals in 1H21.

• The single contract win exceeds our construction orderbook assumption of RM200.0m for FY22f. Consequently, we revised our target higher to RM450.0m for FY22f. With the recent win, AME’s unbilled construction orderbook now stands at approximately RM400.0m, representing an orderbook-to-cover ratio of 2.2x against their FY21 construction revenue of RM182.7m.

• Moving forward, we expect construction activities to gather pace in tandem with the gradual reopening of economic activities alongside with the rollout of Covid-19 vaccine. At the same time, property sales are expected to pick up, particularly from international clients as we gather that enquiries are relatively robust in recent times.

Valuation & Recommendation

• We raised our earnings forecast to account for the stronger-than-expected construction orderbook replenishment. As a result, we upgrade AME to HOLD (from Sell) with a higher target price of RM1.96.

• Our target price is derived by ascribing a target PER of 18.0x to its revised FY22f EPS of 10.9 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 dependence on the foreign direct investment in Malaysia. Changes in government policy that is unfavourable to foreign investors will hinder the sales of the industrial park. Failure to meet targeted orderbook replenishment may derail the prospect of earnings growth.

Source: Mplus Research - 25 Oct 2021