We hosted a conference call for AME Elite. Good institutional investor interest with 14 investors from 10 firms participated in the call. Despite the government’s Movement Control Order (MCO), AME has been able to close new property sales through alternative channels. It is exploring opportunities to expand its land bank in Johor given its low net gearing of 20% at end-2019. AME continues to see enquiries for potential sales at i-Park. We reiterate our BUY call and lift our 12-month target price (TP) to RM1.84, based on a lower 40% discount to RNAV.

Sales Through Alternative Channels

AME secured some property sales in 4QFY20 despite the MCO and the closure of its show galleries. It managed to finalise sales negotiations with potential customers through video conference calls. AME achieved RM137m sales in 9MFY20, which exceeded the RM88m sales in FY19, driven by strong demand for gated and guarded industrial properties at its i-Park@Senai Airport City (SAC) and i-Park@Indahpura projects.

Tender for New Contracts

AME clinched a construction contract in 4QFY20 from a new customer. Remaining construction and engineering order book of about RM300m will sustain its activities in FY21. It has submitted tenders worth RM470m to replenish its order book. Conservatively, we have assumed AME will secure RM100m p.a. new contracts in FY21-22E. We estimate that every RM100m of additional contracts will lift core EPS by 2.4% in FY21E.

Looking to Expand Land Bank

We gather that AME is looking to expand its land bank in Johor and forming joint ventures for industrial property development in Klang Valley. It is currently negotiating for potential land purchase measuring about 100 acres. This will expand its remaining property development land bank of approximately 115 acres with gross development value of RM1.2bn currently. Its low net gearing of 20% currently allows AME to capitalise on the current property downturn to expand its land bank and support the expansion of its property division.

Among Our Top Sector BUYs

We fine-tune our core EPS forecasts to reflect the delay in progress billings in FY20E to FY21E due to the MCO. Applying a narrower 40% discount to RNAV (50% previously), we lift our TP to RM1.84 from RM1.52 previously. We believe this is justified as the Construction Sector’s average share price discount to RNAV narrowed to 32% currently. Maintain BUY on AME.

Source: Affin Hwang Research - 24 Apr 2020