Summary

• We attended AME Elite Consortium Bhd’s (AME) post 4QFY22 results briefing and came away feeling reassured on their prospects moving into FY23f. Following the slowdown in performance over the past two financial years that was hampered by the Covid-19 impact, we anticipate AME to deliver stable improvements in coming years, largely supported by the prospects of stronger industrial property sales.

• After chalking in record high property sales of RM168.4m in FY22, we expect further improvement, premised on higher enquiries for industrial properties from international companies following the re-opening of international borders. Already, AME registered property bookings amounted to RM132.0m over the past 2 months against RM45.4m in 4QFY22. The improvement is mainly backed by a client from USA amounting to RM94.7m.

• Moving forward, AME intends to launch i-TechValley in SiLC in end-June 2022 that sits on 169.8-ac of land and carries a total GDV of RM1.50bn. As at end-FY22, unbilled sales amounting to RM74.0m will be recognised progressively.

• Elsewhere, construction orderbook replenishment at RM433.6m in FY22 with an outstanding orderbook of RM399.8m (mainly from in-house projects) will keep the segment busy over the next 18 months. We expect the future orderbook replenishment to be mainly anchored by in-house projects in line with their expansion of i-Park developments.

• The property leasing segment continues to demonstrate improvement through regular recurring income from the leasing agreements. Occupancy rates remains relatively healthy in both i-Park@Indahpura with 2,290 beds capacity (96.0%) and i Park@Senai Airport City with 2,005 beds capacity (76.0%).

• Moving forward, the expansion of i-Stay@Indahpura comprising 2 new blocks will boost additional 2,290 beds, bumping total capacity to more than 6,500 beds. Upon completion tentatively in July 2022, the aforementioned expansion is expected to generate additional RM7.5m of rental income per annum, based on full occupancy.

• As at end-FY22, AME is backed by healthy cash and bank balances of RM187.2m and a low net gearing of 0.1x. This implies further room to tap into external financing for business expansion plans in the near future. While core net margins have been on a declining trend over the past 2 years, we expect improvement to take place from of the revision of rental income in property leasing.

• We gather that Bursa has approved the listing of industrial REIT spinoff. We expect corporate exercise to be completed tentatively in end-September 2023 will beef up AME’s war chest. At the same time, proceeds from the spinoff has been earmarked mainly for land-banking replenishment activities as the group aims to replicate their success of i-Park models in other states across Peninsular Malaysia.

Valuation & Recommendation

• We tweaked earnings forecast higher by 2.3% and 11.7% to RM59.9m and RM71.5m for both FY23f and FY24f respectively after taking into account for the stronger property sales. Consequently, we maintained HOLD on AME, with a higher target price of RM1.87 (from RM1.65).

• Our target price is derived by ascribing a higher target PER of 20.0x (from 18.0x) to its revised FY23f EPS of 9.3 sen. The assigned revised PER is in line with the historical 1-year mean average and is slightly higher against the construction industry average of 15.0-18.0x, 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. Also, weaker-than-expected construction orderbook replenishment and slower-than-expected industrial property sales may hamper the prospect of earnings growth.

Source: Mplus Research - 7 Jun 2022