AME Elite’s 2QFY20 results were above our expectations. Net profit more than doubled to RM34.1m in 6MFY20 driven by higher earnings for all divisions and a RM7.3m fair-value gain on its investment properties. We raise our core EPS by 6-13% for FY20-22E to reflect higher profit margins and property revenue. Despite the run-up in the share price, we believe its core FY20E PER of 14x is undemanding. We reiterate our BUY call with a higher 12-month TP of 2.28 based on an unchanged 30% discount to our upgraded RNAV estimate.

Above Expectations

Net profit of RM34.1m in 6MFY20 comprises 64% of our previous full-year forecast of RM53.6m. There was a RM7.3m fair-value gain on its investment properties, which we did not assume in our forecast. AME’s revenue grew 7% yoy to RM176.2m in 6MFY20, mainly driven by higher property development (+374% yoy), property investment (+60% yoy) and engineering services (+17% yoy) revenue. This was partly offset by lower construction revenue (-35% yoy) as some existing projects were near completion and new projects are still at initial stages. Core net profit jumped 61% yoy to RM26.8m in 6MFY20, driven by better performance and profit margins for all divisions.

Good Earnings Prospects

AME is seeing higher demand for its industrial properties (purchase and lease) and construction services from local companies looking to set up new plants in industrial parks with better facilities and security. There are also multinational companies (MNC) looking to build new industrial facilities in Johor. Its remaining construction order book of RM402m and property gross development value (GDV) of RM1.3bn should sustain earnings growth ahead.

Upgrade Earnings

We lift our EPS estimates by 6-13% in FY20-22E to reflect higher property development and investment revenue, with better operating profit margins across the board as shown in the 6MFY20 results. We also factored in the increase in total GDV by RM120m with the recent acquisition of a 6.1-hectare land for RM25m to develop i-Park@Indahpura Phase 3.

Maintain BUY

We raise our RNAV/share estimate to RM3.24 from RM2.62 to reflect higher construction and property (higher GDV and market value of investment properties) segment valuations. Based on the same 30% discount to RNAV, we raise our 12-month TP to RM2.28 from RM1.83. We believe our implied target CY20E PER of 15x is fair. Maintain our BUY call.

Source: Affin Hwang Research - 28 Nov 2019