AME Elite continues to attract multi-national corporations (MNCs) to its gated and guarded industrial parks in Johor. Sales jumped to RM137.4m in 9MFY20 compared to RM87.6m in FY19, even though travel restrictions imposed by the government led to delays in completing several land sales. Given the rising risk of a global economic downturn, we expect core EPS to fall 5% yoy in FY21E. This is still a relatively strong performance considering the high FY20E EPS base (+78% yoy). AME is among our top sector BUYs with a 12-month target price of RM1.52, based on 50% discount to RNAV.

Sales Recognition Delayed

AME indicated that 4 new customers from China were interested in setting up manufacturing plants in i-Park@Indahpura. However, the travel restrictions imposed by Malaysia led to a delay in signing the Sales and Purchase (S&P) agreements for the land sales. Hence, this will adversely affect property sales in 4QFY20. But we gather that the potential sales will go ahead and the delay in completing the sales only represents a timing difference in sales recognition. Hence, we expect core net profit to fall 32% qoq to RM11m in 4QFY20.

High Order Book and Unbilled Sales

AME is seeing higher demand for its industrial properties (purchase and lease) in i-Park@Indahpura and i-Park@Senai Airport City (SAC) from foreign companies based in China, Singapore, Australia, Hong Kong, Japan and the US. Its remaining construction order book of RM349m and property unbilled sales of RM121m will shore up FY21E earnings. However, earnings growth will depend on the success rate for its current tenders of RM470m and sales of its remaining property gross development value (GDV) of RM1.5bn.

Good Demand for New I-Park@SAC Phase

AME has commenced i-Park@SAC Phase 3 with gross development value of RM555m to meet rising demand. Recently, a pharmaceutical company based in Singapore agreed to set up a large manufacturing plant on a 7-acre site in i-Park@SAC. Given the rising demand for gated and guarded industrial properties, AME is exploring potential joint-venture opportunities with land owners to develop i-Park industrial parks in Penang and Selangor.

Among Our Top Sector BUYs

We assume new contract wins of RM427m/100m/100m and property sales of RM140m/100m/140m in our FY20/21/22E earnings. We believe AME is relatively more resilient in replenishing its order book and sustaining property sales due to robust industrial property demand. Maintain BUY.

Source: Affin Hwang Research - 3 Apr 2020