Result

• Earnings in line. A & M Realty Bhd (A&M) registered 9M16 net profit of RM15.5m (+8.4% yoy), which is in line with our expectation after meeting 70% of our full year net profit forecast. For its 3Q16 results, the Group posted a net profit of RM8.2m, up 10.8% yoy and 141.2% qoq.

Comment

• Higher 9M16 results underpinned by Property and Plantation divisions. The Group achieved better 9M16 net income (+8.4% yoy) amid lower revenue achieved (-7.0% yoy). The stronger bottom line was due to better performance posted by its Property segment as segmental operating profit surged 10.9% yoy on better margin following the completion of the final phase of Amverton Park. In addition, the stellar performance under its Plantation segment, with the segmental revenue and operating profit soared 18.8% and 80.0% respectively attributable to higher FFB production and CPO prices, also helped to boost the Group’s earnings. Besides, the lower effective tax rate also lifted the overall earnings.

• Gloomy Manufacturing and Hotel & Leisure divisions. The Group’s Manufacturing segment continued to post weaker performance in 9M16, with segmental topline and bottonline down by respective 10.2% and 22.2% yoy on the back of sluggish product sales coupled with rising material costs with the appreciation of USD and Yen against MYR. Meanwhile, the subdued performance posted by the Hotel & Leisure segment (9M16 revenue:-17.2%; EBIT: –88.9%) was affected by lower room occupancy of Puteri Resort Melaka, which is currently undergoing major refurbishment.

• Sales remain challenging. To recap, A&M recorded lackluster new sales of RM9.8m as of 1H16, mainly contributed by Amverton Park in Bukit Kemuning, shoplots in Taman Sentosa Taipan and Impian Sentosa apartment in Klang. All these are completed units which are ready for profit recognition. We reckon that sales were slow for its key project, Amverton Hill in Sg Buloh, as we believe it was due to stringent mortgage approval. Moving forward, A&M targets to launch Amverton Links in Sg Jati, Klang (GDV of RM114m) with affordable pricing range of RM400-450k/unit, aiming first-time home buyers and will continue to scale up its marketing efforts in promoting its semi-dees in Amverton Hills (GDV of RM111m) with ASP of RM1.3m/unit.

Earnings Outlook/Revision

• We maintain our net earnings estimate for 2016-17F

Valuation & Recommendation

• We reiterate our HOLD call on the stock with an unchanged target price of RM1.04. Our target price is based on 60% discount to our RNAV/share of RM2.61 or implies 17.7x 2017F PE. We maintain our neutral stance on A&M due to its low earnings visibility, albeit having net cash position and trading at steep discount to NAV.

Source: JF Apex Securities Research - 24 Nov 2016