AME Elite’s FY20 results were above our expectations. Net profit jumped 35% yoy to RM64m in FY20, driven by higher earnings for all divisions and a RM13.5m fair-value gain on its investment properties. This was partly offset by RM2.9m listing expenses incurred. Core net profit of RM53m (+64% yoy) was within our expectation. We cut our core EPS forecasts by 2-4% in FY21-22E for higher interest expenses. We reiterate our BUY call with a lower 12-month target price (TP) of 2.00, based on a 30% discount to RNAV.

Strong Earnings Momentum

Net profit of RM64m in FY20 was above our forecast of RM58m. There was a RM13.5m fair-value gain on its investment properties, which was higher than our expectation. AME’s revenue grew 12% yoy to RM380m in FY20, mainly driven by higher property development (+114% yoy), property investment (+61% yoy) and engineering services (+68% yoy) revenue. This was partly offset by lower construction revenue (-21% yoy) as some existing projects were near completion and new projects are still at initial stages.

Core Earnings Fell QoQ Due to MCO

Core net profit jumped 64% yoy to RM53m in FY20, driven by better performance for all divisions. Sequentially, core net profit fell 50% qoq to RM8.3m in 4QFY20, mainly due to the government’s Movement Control Order impacting progress billings and property sales.

High New Construction Contracts Secured in FY20

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 from China, Singapore, Australia, Hong Kong, Japan and the US. AME secured higher value of new construction contracts worth RM451.9m in FY20 compared to RM117.3m in FY19. We introduce our FY23E core EPS of 15.4 sen (+11% yoy) assuming new contracts secured of RM200m and property sales of RM157m to drive earnings growth.

Maintain BUY

AME declared a maiden interim dividend of 3 sen (ex-date on 30 July 2020), giving reasonable net yield of 1.8% for a growth company. We cut our RNAV/share estimate to RM2.86 from RM3.11 to reflect the net debt position of RM91m at end-FY20. Based on the same 30% discount to RNAV, we reduce our TP to RM2.00 from RM2.18. AME remains as one of our top construction sector small-cap BUYs.

Key Risks

Key downside risks are slower industrial property sales, higher building material costs and weaker demand for construction services for industrial buildings.

Source: Affin Hwang Research - 26 Jun 2020