Summary

• AME Elite Consortium Bhd's 2QFY23 net profit surged 369.7% YoY to RM45.8m, following one-off disposal of 10 plots of industrial properties to AME Real Estate Investment Trust for RM54.8m. Revenue for the quarter expanded 70.8% YoY to RM147.5m.

• For 6MFY23, cumulative net profit jumped 205.9% YoY to RM51.9m, while core net profit was only at RM9.2m (39.8% of our expectations of RM23.0m). We deem the figures to be in line as 2H figures are seasonally stronger and that may see core earnings to play catch up.

• We reckon that development of new industrial park, namely i-TechValley is expected to see higher contribution following the recent commencement. Industrial property sales are expected to stay buoyant, riding onto the on-going trade diversion from US-China trade war.

• Moving forward, AME is equipped with an outstanding construction orderbook of RM304.2m to sustain earnings visibility over the next 2 years. For 1HFY23, new property sales of RM124.0m makes up to 49.6% of our projection at RM250.0m. This brings unbilled property sales to RM122.9m (up from RM120.4m in 1QFY23) to sustain the property development segment earnings for 2 years.

• Take-up rate for i-Park industrial properties remains sturdy in the recent quarter, premised to the reopening of national borders. For now, AME will focus onto their existing 3 i-Parks at Johor. In the meantime, the proposed development of an integrated industrial park in Penang may only take place sometime in 2024 after the completing the acquisition of land tentatively in 3Q23. Apart from that, AME is also continuously eyeing for opportunities to replicate their successful i-Park business model across Peninsular Malaysia.

• We expect foreign direct investment (FDI) flow to remain solid over the foreseeable future as the recent appointment of new government offers some political stability. We also expect no significant changes from the re-tabling of Budget 2023 that offers business-friendly measures such as extension of tax incentives.

Valuation & Recommendation

• With the reported earnings deem to be within expectations as we anticipate 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 18.0x to its FY24f EPS of 10.4 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 - 30 Nov 2022