Summary

• AME Elite Consortium Bhd's 1QFY23 core net profit fell 15.7% YoY to RM6.1m, mainly attributed by higher finance charges following the unwinding of discount on the deferred purchase considerations for land acquisition and higher minority interest. Revenue for the quarter, however, climbed 78.4% YoY to RM136.9m.

• The reported core net profit came in at 12.5% of our expectations of RM58.6m and 9.5% of consensus forecast of RM63.8m. We deem the figures to be in line as historically, 1Q figures are seasonally weaker. Recall that 1QFY22 core net profit only makes up to 14.9% of total net profit in FY22.

• Moving into subsequent quarters, we reckon industrial property sales may gather pace, particularly toward international prospective buyers. At the same time, the un interrupted site works also bodes well for to the construction and sales delivery progress.

• As of 1QFY23, AME is equipped with an outstanding construction orderbook of RM318.7m to sustain earnings visibility over the next 2 years. Meanwhile, unbilled property sales of RM120.4m (up from RM91.3m in 4QFY22) will sustain the property development segment earnings for 2 years. After delivering new property sales of RM168.4m in FY22, we expect stronger performance to come by for FY23f at RM250.0m (1QFY23 new property sales at RM65.8m).

• We gather that the take-up rate for i-Park industrial properties have turned healthier in recent quarter, premised to the reopening of national borders. Development of new industrial park, namely i-TechValley at Southern Industrial and Logistics Clusters (SiLC), Johor Bahru will sustain earnings growth, while, on-going projects such as i-Park@Indahpura (Phase 3) and i-Park@Senai Airport City will keep the development of integrate industrial park business segment busy.

• On the proposed REIT listing, the restricted offer for sale (ROFS) on the basis of 1 ROFS for every 5 AME shares was completed recently and the listing of AME REIT is tentatively on 20th September 2022. We are sanguine on the REIT spin-off for AME to unlock the value of its unit and also will beef up AME’s war chest to fund working capital and future expansion plans

Valuation & Recommendation

• With the reported earnings deem to be within expectations as we reckon the subsequent quarters will make up to the shortfall, we made no changes to our earnings forecast. Consequently, we maintained BUY on AME, with an unchanged target price of RM1.87.

• Our target price is derived by ascribing a target PER of 20.0x to its FY23f EPS of 9.3 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. Weaker-than-expected orderbook replenishment or slower-than-expected industrial property sales may hamper the prospect of earnings recovery.

Source: Mplus Research - 29 Aug 2022