• AME’s net profit fell 35% yoy to RM31.9m in 9MFY21 as construction activities and property sales were affected during the Movement Control Order (MCO) period. 9MFY21 results lagged our full-year forecast
• We expect earnings to ramp up in 4QFY21 due to lumpy completion of secured land sales and higher progress billings on new projects
• AME remains one of our top small-cap sector BUYs with target price (TP) of RM2.60, based on a 20% discount to RNAV

Recovery Lagging Our Expectation

AME’s core earnings of RM26.2m (+41 yoy) in 9MFY21 comprises 44% of our fullyear forecast of RM60.1m and 50% of consensus estimate of RM51.9m. Although earnings recovery is lagging our expectation, we expect earnings growth to accelerate in 4QFY21 and believe our earnings forecast is achievable. The lumpy land sale in i-Park@Indahpura to a foreign customer was completed in 4QFY21, while progress billing for VS Industries’ plant will ramp up in the quarter.

Slow Ramp Up in 3QFY21 Earnings Due to Timing Differences

Revenue was up 5% yoy to RM175.6m in 9MFY21 as most divisions saw higher revenue: construction (+24% yoy), property development (+37% yoy), property investment (+30% yoy) and engineering (-57% yoy). Operating profit fell 23% yoy to RM55.7m in 9MFY21, mainly due to lower construction earnings (-69% yoy), while its engineering division incurred a RM1.2m loss. Construction profit margin fell to 7.0% in 9MFY21 from 20.2% in 9MFY20 as works on a large-scale plant profit is still at the early stages. We gather that margin should improve as the project moves to higher value-added works in 4QFY21. The additional costs incurred due to the MCO disruptions also squeezed profit margins.

Sufficient Order Book and Unbilled Sales

Its remaining order book of RM203.2m and unbilled sales of RM126m should shore up FY21-22E earnings (60-70% to be recognised in 4QFY21). Remaining gross development value (GDV) was RM2.7bn as at end-2020.

BUY With Potential 18% Upside to TP

The acquisition of industrial land in Iskandar Puteri from UEM Sunrise will potentially enhance RNAV/share by 11% to RM3.61. We reiterate our BUY call with a TP of RM2.60, based on a 20% discount to RNAV. Key risk is slower property sales.

Source: Affin Hwang Research - 1 Mar 2021