What’s new

• Secured a sizeable deal. AME Elite Consortium Berhad (AME) has secured an industrial land deal to sell 6 pieces of land together with industrial buildings in i Park@Senai Airport City 3 to V.S. Industry.

• A deal totaling RM98.7m. The land cum factory/office deal is worth total RM98.7m (18% of total GDV of RM555m). Construction of 2 properties are: - 69,770 square feet single storey detached factory with 2 storey office block valued at RM15.8m; and - 343,911.96 square feet single to three storey industrial building with 2 storey office block dealt valued at RM82.9m.

Comment

• Earnings impact. We expect the deal to contribute moderately to the Group’s bottom line for FY21 while meaningfully in FY22. The industrial land sales will provide 1 – 2 years earnings visibility to AME. Assuming operating margin of 20%, the Group is expected to book in RM15.0m net profit during the tenure.

• A strategic location for setting up a comprehensive value chain. The designated settings in AME’s industrial park is highly favoured by local and foreign corporates in which we have seen Enics from Eurozone and Jstar from China decided to expand their ASEAN footholds in Malaysia ahead of other countries. Subsequently, local EMS player V.S. Industry is willing to relocate its headquarter and manufacturing facilities to the industrial park, further enhancing the reputation and reliability of AME which has shown its vision as a provider of comprehensive industrial solutions. Moving forward, we believe the Group will clinch more deals benefiting from the US-China trade war as AME has seen overwhelming responses on its i-Park@Senai Airport City 1 & 2 (GDV: RM717m).

• Capitalizing on economic recover with ready landbank. Earlier, AME had entered into a heads of agreement (HOA) with UEM Sunrise to acquire 169.8 acres of freehold industrial land in Nusajaya for a total purchase consideration of RM434.3m (land cost of RM59psf). AME has successfully replenished its landbank to capitalize on potential MNCs shifting out their manufacturing base from China to ASEAN countries post-pandemic.

Earnings Outlook/Revision

• No change to our earnings estimates as we already factored in the yearly industrial property sales target of RM220m for FY21F and RM250m for FY22F.

Valuation & Recommendation

• We maintain BUY call on AME with an unchanged target price of RM2.21. Our target price is pegged at PE multiple of 14.8x CY21F which is in line with -1SD of 5-year Bursa Malaysia Construction Index mean PER.

• We like the stock for its: 1) potential landbanking in Klang Valley, 2) potential listing of industrial REIT in the immediate term; and 3) unique busines model which is relatively unfazed by prevailing pandemic and economic downturn.

Source: JF Apex Securities Research - 15 Oct 2020