Summary

• AME Elite Consortium Bhd's 2QFY22 net profit decreased 14.3% YoY to RM9.8m, mainly due to weaker contribution from the construction segment amid work restrictions from the Full Movement Control Order (FMCO) implementation. Revenue for the quarter contracted 28.6% YoY to RM86.3m. For 6MFY21, cumulative net profit rose marginally by 1.5% YoY to RM17.0m. Revenue for the period, however, fell 7.1% YoY to RM163.1m.

• The reported earnings accounted to 34.0% of our estimates at RM49.9m and 38.4% of consensus forecast of RM44.2m. We deem the figures to be in line, in anticipation for a stronger performance in 2HFY22 as the group would emerge from the slower property sales, coupled with delay in projects completion.

• In 2QFY22, overall performance was dragged down by the weaker contribution from the construction segment that was affected by the slowdown in work progress for the on-going construction projects. Going into the second half of the financial year, we expect a strong pickup in work progress alongside with the re-opening of economic activities under the National Recovery Plan (NRP) as we gather that AME’s operations has returned to full scale since October 2021.

• Moving forward, AME is equipped with an unbilled construction orderbook of approximately RM117.6m (as of end-2QFY22), representing orderbook-to-cover ratio at 0.6x against FY21 construction revenue of RM184.7m. This will provide earnings visibility for the construction segment over the next 12 months.

• Meanwhile, unbilled property sales of RM67.8m will provide earnings visibility over the next 2 years. With the impending re-opening of travel borders, prospective overseas investors will boost take-up rate for i-Park industrial properties, given that there are still plenty of demand from the enquires.

• We also note that REIT listing would take place tentatively in 2Q2022 (from earlier targeted end-2021). The move that may potentially raise proceeds amounting to RM254.8m (based on IPO price of RM1.00) which will unlock the value of its assets and beef up AME’s war chest to cater for future expansions.

Valuation & Recommendation

• With the reported earnings deemed to be within our forecast as we anticipate 2HFY22 to play catch-up with our figures, we maintained our HOLD recommendation on AME with an unchanged target price of RM1.96.
• Our target price is derived by ascribing a target PER of 18.0x to its FY23f 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 dependency on the foreign direct investment in Malaysia. Weaker-than-expected orderbook replenishment or slower-than-expected industrial property sales may hamper the prospect of earnings recovery.

Source: Mplus Research - 26 Nov 2021