Summary

• AME Elite Consortium Bhd's 3QFY23 core net profit fell 13.4% YoY to RM9.3m, mainly due to divestment of 49.0% stake in AME REIT to facilitate the listing process in 3Q22. Revenue for the quarter, however, added 40.6% YoY to RM134.3m.

• For 9MFY23, cumulative net profit jumped 121.0% YoY to RM61.2m, while core net profit was at RM18.4m amounted to 80.2% of our expectations of RM23.0m. We reckon that overall improvement may sustain moving into the final quarter of the financial year that will be driven by the improved foreign direct investment (FDI) following the re-opening of national borders.

• Moving forward, AME is equipped with an outstanding construction orderbook of c. RM300.0m to sustain earnings visibility over the next 2 years. For 9MFY23, new property sales of c.RM200.0m make up to 80.0% of our projection at RM250.0m. As a result, unbilled property sales at c. RM130.0m (up from RM122.9m in 2QFY23) will sustain the property development segment earnings for 2 years. Following the disposal of 10 plots of land to AME REIT, the group is equipped with a sizeable war chest with a net cash position at RM189.3m.

• Take-up rate for i-Park industrial properties remains stable in the recent quarter, driven by rapid industrialisation. Meanwhile, the acquisition of 72 freehold industrial plots with combined area of 169.8-ac is well on track for completion in mid-2023, pending a release of 1 bumi lot.

• With the development of i-Park @ Senai Airport City (Phase 3) in place, we reckon that the development of new industrial park, namely i-TechValley that commenced since 1QFY23 is expected to see higher contribution over the foreseeable future. The latter is expected to generate a total of RM1.50bn in GDV.

• We expect the improvement of foreign direct investment (FDI) will continue to drive demand in the manufacturing and e-commerce industry, which consequently translate to higher demand for industrial space. Already, we gather that industrial property transactions volume in Malaysia for 9M22 rose 57.5% YoY to 6,044 units, while value transacted increased 34.9% YoY to RM15.20bn.

Valuation & Recommendation

• With the reported earnings came in within expectations, 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 - 27 Feb 2023